As a home owner, you have to sell your house four times to get it to the closing table. First, you have to sell it to the Realtor who is going to be your listing agent and represent you and your interests to the world. Then your Realtor has to excite *other* Realtors into believing the home is worth the price. That Buyer’s Agent then has to excite their clients, so they’ll visit and consider the home for purchase. So far we have three sets of people being sold primarily on emotion.
However, there’s a fourth person who evaluates the sale and that person does NOT base decisions on excitement or emotion. That’s the appraiser. The appraiser is the person who determines if the home is worth the amount that the bank will be laying out to the buyer as a mortgage loan. It's a major responsibility because If the appraiser overvalues the home, the loan goes through and then the buyer later defaults, it’s the bank that takes the hit;. Based on the number of foreclosures and short sales in recent years, banks are stricter than ever when analyzing home values. Therefore, there’s no room for emotion in an appraisal—just clear-cut facts.
Here's a summary of the appraisal process: the appraiser visits the home in question to make sure that everything in the listing is accurate. Then he or she compares the home to others in the immediate area (if possible) that are most similar and have sold within the last 3-6 months. If there are slight differences in square footage, acreage, amenities, they make adjustments up or down to determine the actual market value of the home in question. If the mortgage amount asked by the seller and agreed to by the buyer for the home is more than its appraised value (less deposit), the bank will not approve the buyer’s mortgage loan. It is then up to the sellers to decide if they will reduce their price or up to the buyers if they will take the home anyway and just make up the difference in cash.
That latter scenario is what so many home sellers are counting on when they reject the price I am advocating for their home. So often I hear, “We just need that one buyer who falls in love with the home” or “Someone will think the home is worth it ande com up with the difference.” In other words, they’re hoping for a buyer who is not being properly counseled by their agent or an unrepresented buyer that is uneducated about local home values. The truth is that in the wake of the financial turmoil of 2007-2011, it’s unlikely that buyers’ attorneys are going to allow their clients to buy a home that’s worth less than the sales price. And most buyers are not sitting on a pile of cash to lay out for a home they’ve just been told is overpriced. In other words, those deals die.
When I point out comparable properties on which to base pricing, home sellers often defend their overinflated price by telling me, “Did you see that home? It had a overgrown backyard, it had very messy neighbors next door, it had ugly wallpaper, etc.” Unfortunately, none of that matters to the appraiser; they can't go inside sold houses so they won't have any idea about these issues. They’re going by the listing sheets to ‘comp out’ the property, just like the Realtor is. They’re going by square footage, acreage, number of bathrooms, whether or not the basement is finished, and so forth. Often, they’re not even local to the area. In Rockland. I’ve actually seen appraisers come all the way down from Poughkeepsie.
Because appraisers are not always local and are certainly not infallible, a good agent will meet the appraiser at the property when they visit and defend their listing price by presenting comparable listings that sold at a similar price. All those comps, in a perfect world, will be similar in size, style, amenities and school district. That way, these agents can head off a problem before it starts. HOWEVER, even the best agent in the world can’t defend a price where there are no comparable sales because the home is overpriced. Again, the deal dies.
So consider the Great and Powerful Appraiser when discussing price with your Realtor. Ultimately, it’s your agent’s responsibility as your fiduciary to make sure you price your home at a price that will allow it to sell. By insisting on listing at an unrealistically high price, you could cost yourself thousands of dollars because your listing will sit and get stale. When a house's Days on Market (DOM) are longer than average, the situation gives buyers pause. They may never visit because they assume something is terribly wrong with the home. A good agent won’t take an overpriced listing because they know they’re working against the best interests of the home owner. Listing with the agent who agrees with your *dream* price because they’re telling you what you want to hear may get them buyers (to whom they'll sell better-priced homes) but it's sentencing you to a place on the Expireds List in 6 months’ time. That is NOT where you want to be.