Perhaps the biggest concern when pricing your home in today’s market is making sure their are a suitable number of comparable sales to justify your price. It is a big part of your agent’s job to find these comparable homes and the available data should be seriously considered by sellers before putting a final price on the home. Why is this so important? Lets look at a few reasons.
1. Lenders are now requiring that appraisers only use comparable sales that are 3 months old or less. That means if your neighbor’s home is just like yours and sold 6 months ago the appraiser cannot consider it’s sales price when pricing your home. In fact, if your closest comparable sale over the last 3 months was 10 miles away an appraiser would have to use that home rather than your neighbor’s home that sold 6 months ago. This seems silly but it is the way the industry is working right now.
2. Due to the fact that fewer homes have been selling over the last 2-3 years, and many of the ones that did sell were foreclosed homes and distress sales, the overall values of homes have been in mild decline and therefore many appraisals have been getting cut. (Getting cut means that even though the home may have received an offer of $100,000 for example, the appraiser is saying it’s only worth $97,000 so the bank will only loan on that lower amount.)
3. The appraisal has now actually surpassed the home inspection as the biggest hurdle to closing a property after an offer has been secured. While in the past it has usually been considered a “slam dunk” to get the appraisal to pass in an appreciating market, it is now common for real estate agents to see their closings delayed or even killed completely by an appraisal that has gone bad.
Now don’t get me wrong, the appraisal process is very important and it is in the buyer’s best interest to make sure they are not overpaying for a home. But in the past it was often common for a seller to price a home higher than their agent suggested hoping they would get top dollar and sometimes the buyer would pay the higher amount. In our current market that is not a wise way to do business. It is far more important right now to have solid comparable sales data updated monthly so a seller and buyer will not find their home sale sabotaged by the appraising process.