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Is Getting a Pre-Lisitng Appraisal Necessary?

By Simon Mills

Real Estate Broker/Owner with Mills Realty

September 16, 2011 02:47 PM

I’ve read a few articles and blogs recently about different views on home sellers getting a pre-listing appraisal prior to marketing a property for sale. Obviously pricing a property is one of the most important steps when it comes to selling a property. No buyer wants to purchase a property that is priced above market value and no seller wants to sell a property below market value. The quandary is how to determine market value.

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The traditional way has always been to contact a neighborhood Realtor and have them give you a free Comparative Market Analysis (CMA). The CMA will include similar properties that have recently been sold, are under contract and are currently active in the marketplace. The CMA will result in the Realtor’s opinion on what they feel the house will sell for. The question on this approach is since a Realtor has provided this free service in the hopes of earning business by getting the listing is the end result truly unbiased? Realtors would answer that they are ethically bound to provide accurate information, but unfortunately the consumer doesn’t always equate ethics with Realtors!

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Another approach in establishing value is the pre-listing appraisal. This entails the homeowner engaging a licensed real estate appraiser to appraise the property and establish a value. The average price for an appraisal is $350 depending on your local market. Although this is an out of pocket expense that the homeowner pays for the end result is an unbiased opinion on value. With this valuable information the homeowner can strategize a market price with their Realtor and substantiate the price to any prospective buyer. This process also eliminates the fear of “Will the property appraise?” when the property is in escrow and the buyer goes to get their loan.

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Knowledge is power and knowing what a home is truly worth in the current market place is a very powerful tool for a home seller to have when they are trying to sell their home. Paying for a service prior to selling a home is not the “norm”, but if you are paying for a valuable insight and professionalism isn’t it worth it?

By no means is this a knock on a Realtors capability of effectively pricing a home, but instead it is to fill the consumers’ need to have an unbiased opinion. At the end of the day don’t we all want our clients to be comfortable with the process and for them to turn into raging advocates that tell their family and friends about how great our service are?

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Sandy Acevedo

951-290-8588 - Chino Hills, CA

RE/MAX Masters, Inland Empire Homes for Sale

An appraisal is advisable for an unusual, unique property. But, I don't always agree with an appraisal. They are too rigid in a upwardly moving market. I find them too conservative.

Sep 17, 2011 04:59 AM

Simon Mills

Mills Realty - Toluca Lake, CA

Sandy - You raise an excellent objection to my post. Although we are not in an upwardly moving market currently, I can see your point when we are. I still feel that an appraisal is a great value tool in an appreciating market place, but it woudl simply be a tool and not the end all of a marketing price.

Sep 17, 2011 05:05 AM

Steve Mangus

not active - Oklahoma City, OK

To the best of my knowledge, pre-listing appraisals are very rare in our market. However, as Erica points out, after a few months the appaisal is not valid anymore and the lender is going to require another one anyway. If the owner thinks the Realtor's CMA is inaccurate, they may want to get an appraisal for their peace of mind, but I don't see where it's necessary.

Sep 17, 2011 07:02 AM

John Juarez

The Medford Real Estate Team - Fremont, CA

ePRO, SRES, GRI, PMN

I fear that a seller who has paid for an appraisal will get stuck on that price. Having an appraisal is no guarantee that a house will sell for the appraised amount. If that was true we would simply get all listings appraised prior to entry onto the market, state the appraised price, and there would be no negotiations in regard to price. The buyers would be expected to pay the appraised price.

How well do you think that would work?

Sep 17, 2011 07:12 AM

Dawn Crawley

Dawn Crawley Realty - Pinehurst, NC

Find Pinehurst Homes

We have more problems than successes with pre-listing appraisals. They are usually higher than what the seller is going to get, and the homes sits too long because the seller has unrealistic expectations of the sale price.

Sep 17, 2011 09:05 AM

Simon Mills

Mills Realty - Toluca Lake, CA

Steve - The lender is always going to require a new appraisal, so this is not trying to eliminate that process. The point is to establish fair market value from an unbiased opinion.

John - I assume you meant the seller as that is who I was referring to. The market will always dictate the selling price as if two (or more) buyers are interested the property will sell for more than asking. Nothing will ever replace a free marketplace.

Dawn - That could be the downside during a depreciating marketplace, but I haven't found it to be the issue.

Erica - This is not to eliminate future appraisal problems, but it should help mitigate them. The real point is to get an unbiased opinion.

Sep 17, 2011 10:51 AM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

I would think that getting a pre-listing appraisal would be most necessary in two main cases. One, if the seller's own estimate was SOOO way out of line that the listing agent could not talk sense into them... or two... that the listing agent has no clue whatsoever as to the market value of the property, and wants to get off the hook.

Sep 17, 2011 01:41 PM

Karen Anne Stone

New Home Hunters of Fort Worth and Tarrant County - Fort Worth, TX

Fort Worth Real Estate

By the way, Simon... I see that you have included this post in only one Active Rain Group. AR allows, and encourages you to include it in a maximum of five groups. That way you get much more exposure for your post... and heighten the number of readers and comments you will get. Just a thought.

Sep 17, 2011 01:43 PM

Simon Mills

Mills Realty - Toluca Lake, CA

Karen - Thanks for the tip on the Group postings. Your first case is an obvious reason for the pre-listing appraisal, but I'm not buying that an agent would have no-clue as to the market value of the property. There are just too many tool accessible to an agent to assist in determining market value.

Corinne - I agree that most seller are resistant as they have been accustomed to the free CMA. My point is that the CMA might not be in the seller's best interest.

Sep 17, 2011 02:56 PM

Evelyn Kennedy

Alain Pinel Realtors - Alameda, CA

Alameda, Real Estate, Alameda, CA

Simon:

I have asked one of my clients to get prelisting appraisals. We found at one point that the appraisal was too high and my seller would not come down on his sales price.

Sep 17, 2011 03:11 PM

Simon Mills

Mills Realty - Toluca Lake, CA

Evelyn - Nothing is perfect, right? Did you feel it was too high when you first received it?

Sep 17, 2011 03:19 PM

w w

Solana Beach, CA

I think a pre-listing appraisal is a great idea, especially in this market. Thanks for the post!

Sep 17, 2011 04:00 PM

Michael Hobbs

PahRoo Appraisal & Consultancy - Chicago, IL

SRA, LEED GA, RAA

Simon,

Great Post. There have a been a number of very good comments both in support of your suggestion and contrary to it. Our firm regularly provides listing appraisals for Realtors and sellers in the 'pre-listing' stage...and generally it tends to happen in a couple circumstances:

a) the seller has unrealistic expectations about the list / sales price and the Realtor wants to reign them in

b) the seller wants an unbiased opinion before meeting with Realtors to have a baseline to compare the Realtors in order to make a decision

c) the property has some uniqueness to it (proximity to a positive feature or a negative feature as an example) or bigger than normal or smaller than average and / or there haven't been recent sales of similar properties and an outside opinion is desired.

Additionally, for the small price of the appraisal, compared to the much larger sales commission generated from a sale, it is a good marketing tool.

Of course, all of this is predicated on having a knowledgeable and talented appraiser performing the pre-listing appraisal. We even go so far as to provide both a market value for the current date as well as a forecasted sales price based on market trends and competitive market environment.

In response to where can others find talented appraisers: www.appraisalinstitute.com is the best source.

Sincerely,

Michael

Sep 17, 2011 04:22 PM

Lawrence Evans

Team Limejuicer/Remax - Germantown, MD

Simon I understand your opinion, but I would prefer the seller spend $400-$600 on a broker's open and get dozens of opinions from marketing experts of that area. The appraised value just like the market value can change on a dime, requiring the listing agent to educate his seller. Sellers more often than not get stuck on the value of pre-listing appraisals, creating more aggravation for the listing agent.

Sep 18, 2011 01:48 AM

Simon Mills

Mills Realty - Toluca Lake, CA

Wendy - Thanks for the support

Michael - Excellent comment. Thank you for the recommendation on the appraiser website.

Lawrence - I can see your point. However, seller's can get stuck on any number, so I don't feel that is an argument to not have an unbiased opinion.

Sep 18, 2011 04:44 AM

Lloyd Binen

Certified Realty Services - Saratoga, CA

Silicon Valley Realtor since 1976; 408-373-4411

I've never done a pre-listing appraisal because I work in a small geographic area and I think I know more about market values than an appraiser. If I was working out of my area it might make more sense to me.

To my way of thinking a pre-listing appraisal assumes that an appraiser knows more about the market values than a ready, willing and able buyer does. I don't believe that. They look at the same comps we do.

Also, some buyers don't need the property to appraise because they have large down payments.

what does this mean: Simon Mills of Mills Realty is in the top 1% for listings sold in California.

Does it mean Simon Mills has sold more homes than 99% of Realtors in CA?

Sep 22, 2011 05:36 PM

Simon Mills

Mills Realty - Toluca Lake, CA

Lloyd - I agree that some buyers don't need the appraisal and that is indeed a valid argument, but the majority of buyers will need it. My point wasn't so much for the buyer, but it was more for the seller to have a truly unbiased opinion. I feel the same as you that the comps are readily available and I am perfectly competent to give an accurate assessment, too. This is really intended to remove the agent's motivation out of the equation and have the seller feel at ease with the number. "Simon Mills has sold more homes than 99% of Realtors in CA?" means exactly what it says and that is that I have sold more homes than 99% of licensees in California.

Sep 23, 2011 06:28 AM

Regina P. Brown

MBA Broker Consultants - Carlsbad, CA

M.B.A., Broker, Instructor

Simon, I agree that the seller should pay for a pre-listing appraisal; however, most will not. REO's, Short Sales, and even equity buyers just can't afford it.

I also think they should pay for a pre-listing home inspection which they should hand to the buyer before the buyer writes an offer! Can you imagine how many problems that would eliminate!

Sep 23, 2011 09:19 PM

Simon Mills

Mills Realty - Toluca Lake, CA

Regina - REO's have alreay done apprasals and short sales will have them done during the approval period, so those aren't really the types of lisitngs I'm talking about. I know that many equity sales are trying to save money and would balk at the pre-listing appraisal, but there are others areas that they might want to consider savings money. I agree the pre-listing home inspection is a great idea. Sounds like a good blog!

Sep 24, 2011 12:30 PM

Leslie Ebersole

Swanepoel T3 Group - Saint Charles, IL

I help brokers build businesses they love.