How much you can sell your home for, depends on the appraisal process

Article by Heather Chilvers, Coldwell Banker Bermuda Realty

In the wake of COVID-19 it’s no secret that the value of homes has fallen slightly. As a homeowner this current market, probably doesn’t look too favorable to you. However, as a buyer, whether you are thinking of downsizing or upsizing the value of the home you are looking at, will have also decreased in value. Therefore, you will need less money today to buy the same house than you would have when the market was stronger. So it is all relative. Likewise the person buying your property will also need to borrow less, and that can open you up to a whole new field of buyers, who weren’t in this position beforehand.

The fact is, the amount of money you want or need for the property you are selling, does not correlate with what the market dictates it's worth. For instance, I might want or need to sell my home for $1 million. However, that doesn’t mean my house is worth that much money. A home’s value is determined by two factors a) what someone is prepared to pay for it, and b) perhaps more importantly what it is appraised for.

The appraisal is an all-important step in the home selling process. Any buyer who is applying for financing will need to go to the bank. The bank will only finance about 80 percent of the home’s value as determined by an appraisal or the offer and acceptance price, whichever is the lower. A real estate appraisal is simply that — the expert opinion of a certified, licensed professional who determines the value of a piece of property.

If you list your home at $1,000,000 but the appraisal only comes back at $935k, then unfortunately in the eyes of the lender and the buyer, your home is overpriced. Once the appraisal is received, it may be scrutinized by an in-house banking team. Sometimes the value the bank assesses it at, is not even as much as the appraised value.

The home appraisal is a no-nonsense factor in a decision that is often emotional for both the seller and the buyer. A motivated seller should either get a professional home appraisal done within one month before putting the house on the market, or if they have listed it as a Sole Listing with one Agency, ask that Agent to provide them with a Comparative Market Analysis, of homes that have just sold, and homes that are currently on the market that will be competing with theirs.

Coming on the market at the right price will help ensure a quicker sale and a smoother transaction. This is particularly important if the seller has already picked out their new home. Be transparent with the Agent that you have commissioned to sell your house. Be totally upfront about money, motivation, and time frame. Your Agent is there to help you, and they want to do the best job for you. 

For the buyer, a home appraisal protects the buyer from paying too much for a house simply because it was love at first sight.  It also protects the Bank from lending against a property that’s worth less than they’ve invested.

The primary appraisal method for residential property, is the sales comparison approach. The appraiser compares the property with several similar homes that have sold in the area, often called comparables, or comps. The analysis considers specific components, such as lot size, square footage of finished and unfinished space, style and condition of the house, as well as other amenities such as garages, pools, and location.

If the appraisal comes back at a lower price than agreed upon from the lender’s standpoint, the mortgage transaction is at a standstill. So it is at this point it is usual to go back to the negotiating table. After all, the appraised price is exactly that, and there are not many people who are willing to pay over that number, except perhaps in a multiple bid situation. Perhaps you, the seller, should lower to the appraised price. Rarely will the homebuyer be willing to increase their cash down payment (even if they are in a position to) in this market.

The buyer and seller can negotiate compromises that will satisfy the lender. If, however, negotiations fall through and the appraisal is still too far below the figure that the bank is willing to finance, then there’s no choice but to cancel the transaction. The buyer probably signed a sale and purchase contract, stating their offer for the property is subject to a loan contingency. This is a statement that allows the buyer to cancel the contract and receive any deposit paid to the seller as they are unable to qualify to buy the property at the agreed terms. A home appraisal is more than just another cost added to the bottom line. It’s a protection for everyone involved in the home-buying process. It will help sellers be realistic about how much their home will sell for, and buyers make a more informed decision about purchasing a home. If as a seller, you feel the appraised value is lower than you can accept, then it may be worth waiting to re-list your property, when the market conditions are more favorable to you. 

If you do not have an appraisal before putting your home onto the Sales Market. Work closely with the Agent who you have chosen to represent you, they will have access to information on properties that have sold recently (that are similar to yours), properties that are for sale, and perhaps more importantly, the number of days they have been on the market.  Be aware that the most interest in a new listing is generated within the first 2 – 4 weeks, that is when you are most likely to find a buyer. By putting the property on the market at too high a price, you may get people wishing to view your property. However, these won’t be the people who are going to buy it, as they are looking for better value for their money. Buyers are savvy they have access to a lot of information on line, and they do their homework. Often times someone who might buy your property is afraid to make a low offer, in case they offend you, and by the time you adjust the price to meet the market, they have already moved on and purchased something else. Other buyers may see it as ‘old inventory’ and wonder what is ‘wrong’ with it if the price keeps being reduced. Ultimately it may end up selling for less than if you had come on to market at the right price and serious about your sale.

In this market, correct pricing is key to your success.

Heather Chilvers is among Coldwell Banker Bermuda Realty’s leading sales representatives. She has been working in real estate for over 30 years. If you have a question for Heather, please contact her at or 332-1793. All questions will be answered confidentially.

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