When selling your home, the appraisal plays a significant role in determining the market value of your property. The outcome directly affects the selling price and financing options for potential buyers.
Understanding what appraisers look for and how their assessments impact your sale is crucial for setting realistic expectations as you prepare your home for sale. Here’s what you need to know.
"A home appraisal is a professional assessment of a property’s fair market value, completed by a licensed appraiser. The appraiser evaluates the home’s condition, location, size, and features, and also considers recent sales of comparable properties in the area. Lenders require this process during a home loan to make sure the property is worth the amount being borrowed. In short, a home appraisal protects both the buyer and the lender by ensuring the purchase price aligns with the home’s actual value." -Assessed vs. Appraised Home Value: What's the Difference?
While lenders require a home appraisal to protect their investment, appraisals serve every party involved, as they ensure the seller receives fair market value for the home and can help prevent the buyer from overspending.
A home appraiser conducts a thorough inspection of the property. They make note of various factors to create an unbiased valuation of the home to share with all parties involved in the sale.
Low appraisals are caused by a variety of factors, mostly due to market fluctuations. If your home appraises for less than your asking price, don’t panic. While a low appraisal can kill the deal, it doesn’t have to. There are a few actionable steps you can take to close on a successful home sale.
After you’ve reviewed the appraisal and found notes for the appraiser, submit your findings for review, and request a second appraisal. If you don’t have enough findings to warrant an appeal or your request is denied, then move forward with the sale using one of the following methods.
Since lenders base the loan amount on the appraised value, not the purchase price, the buyer can choose to cover the gap out of pocket. In some cases, though, a lender may not allow this. When that happens, buyers sometimes negotiate for the seller to offset costs in other ways, such as paying part of the buyer’s closing costs.
If the home is overpriced or the value inflated, lowering the price is often the best solution. It keeps the deal alive, satisfies the lender, and reassures the buyer that they’re paying fair market value.
Instead of asking the buyer to pay the entire difference, settle somewhere between a full cash contribution and completely lowering the price, with both parties sharing the burden. For example, if the appraisal comes in $10,000 below the purchase price, the seller could reduce the price by $5,000, and the buyer could bring $5,000 in cash to closing.
If the buyer is using a VA loan, there are additional protections built into the process:
These VA steps don’t guarantee a higher value, but they give military buyers and sellers the chance to challenge the appraisal before resorting to lowering the price, paying cash, or canceling the contract.
If none of these solutions work, the contract may need to be canceled. Many purchase agreements include a loan contingency clause, which protects the buyer in situations like this. If the appraisal is too low for the loan to be approved, the buyer can cancel the deal and have their earnest money deposit returned.
For buyers using the VA loan, there’s an extra layer of requirements to keep in mind: the Minimum Property Requirements, or MPRs. While they may sound similar to a standard home appraisal, MPRs serve a different purpose and are an important distinction for anyone selling to a military buyer using the VA home loan.
The Veterans Benefits Administration explains:
“VA has established Minimum Property Requirements (MPRs) to protect the interests of Veterans, lenders, servicers, and VA. Properties must meet these requirements prior to guaranty of the loan by VA.” - Veterans Benefits Administration
In simpler terms, while a typical home appraisal primarily evaluates the market value of a property, MPRs ensure that the home meets basic standards of safety, livability, and sanitation for military families. It’s VA’s way of protecting service members from purchasing homes that could present health hazards or structural concerns.
VA home appraisers review the property not just for value, but also for compliance with MPRs, which can include:
While MPRs can seem like a minor step in the home-selling process, understanding them can make a big difference. Sellers who proactively address potential MPR issues, such as plumbing, electrical systems, or roof conditions, are more likely to avoid delays in VA loan approval. A home that meets MPR standards will not only pass inspection smoothly but also appeal to military families seeking a move-in-ready home that they can close on quickly.
Additionally, having a home loan and closing cost calculator for sellers to reference (search online) can help you anticipate financial details. These tools allow you to estimate potential costs associated with VA loan transactions, including commissions, fees, and closing costs, so you can plan ahead and price your home competitively. Being prepared with these numbers helps make the selling process transparent and stress-free for both you and the buyer.