People who are in the process of selling their homes soon become familiar with the routine that comes with selling your house when potential buyers come to see their houses. They clear up clutter, make the beds, do up the dishes and keep the kitchen clean etc. This routine can go on for months on end. After what seems to be ages, when home sellers finally have an offer in hand, they breathe a sigh of relief and think that they are finally done with all of this. Now they can just relax and attend to the closing of the deal and start the process of moving out.
No so fast!
Experienced home sellers will tell you that their house must be “sold” two more times before the deal can close completely. Enter the appraiser and the inspector.
The Appraiser and his Facts
Of the two individuals the appraiser may be your home’s harshest critic. This person will inspect your house clinically with zero emotion and only look at the facts. The appraiser who often represents a bank or financial institution will disregard the happy memories associated with your home such as the wonderful deck and living area where you have spent many family get-togethers or the garden where you have hosted many parties etc.
The appraiser will look at the cold hard facts of the market including nearby foreclosed properties. He / she will harshly estimate the market value of your house and confirm the price that the buyer has agreed to pay. If the appraiser does not validate the buyer’s offer price the deal may not materialize. This is all the more true when the buyer has applied for a mortgage thereby subjecting the sale to the approval of the bank which is disbursing the loan.
Use This Appraisal Checklist
Do remember that this stage is a very crucial phase if you actually want to see the deal go through. Since this is an important step in the sale of your house I have put together a check list below to ensure that everything gets covered during this process.
- Before the appraiser arrives at your doorstep ask him / her about their license, certifications and experience. If the appraiser is sent by the bank ask for the business card of the appraiser.
- Not every appraisal assignment will have a highly certified diligence expert working on it. Banks often hire external appraisal agencies for this work. An appraiser looks at your house with the eyes of a typical buyer. But the value in the eyes of the appraiser may not match the value in the eyes of the buyer. For example the value of your house may be much higher in the eyes of someone who is your neighbour and who wants to buy your property to extend his own property and create a larger home.
- Find out if the property appraiser is familiar with your area. When the appraisal standards are followed diligently, the appraiser is more often than not able to come up with an accurate value opinion of your property regardless of how much or how little local knowledge the appraiser has of the area. In reality though, sometimes the appraiser’s valuation is off. If your appraiser has a good knowledge of the area in which your house is located then as the home seller you can consider that factor as a plus in your favour.
- Understand the difference that can arise on the property price between the appraiser’s point of view and the real estate agent’s point of view. The agent will devise the best price for your property by using comparative market analysis which uses the knowledge of comparable sales in the area as a benchmark to decide the sale price of your house. In an appraisal though, the comparable sales data is actually adjusted to compensate for the differences between them along with your property. The final appraisal value of your property is meant to be arrived at in an organized and systematic manner.
- There are two things to be remembered – appraised value and assessed value (ready reckoner value) – they are not necessarily the same. Assessed value is the ready reckoner value that is assigned to your property by the tax authorities as of a particular date in order to calculate stamp duty and registration charges. That date can be two years in the past and may not be close enough to the value that you need for selling your property today. Government tax assessors cannot go and visit thousands of properties in each assessment period and so their assessment calculations are dependent on software models and are not based on painstaking personal inspections of the property. Assessed value or the ready reckoner value is thus more often less than rather than being more than the appraiser’s value.
- Ensure that before the appraiser arrives, you have in hand all the documents required to simplify the appraiser’s job. This includes:
- The sale deed
- The plans
- Purchase Agreements
You could even make the appraiser’s job easier by creating a list of nearby properties similar to yours that have been sold for a similar price.
- Make a list of recent repairs, renovations and improvements that have been done to your home along with the costs and hand it over to the appraiser. Even though cost and value are not the same it cannot hurt to provide this information.
Working with the Home Inspector
Home inspection services are now being utilized by many home buyers across India before finalizing the deal. So apart from the appraiser as a property seller you must also “sell” your house to the buyer’s inspector. Why is that so? Well, because it is the inspector’s job to assure the new buyer that there are no major undisclosed problems that lie beneath the surface of the house.
Since home inspectors are being hired by property buyers to investigate underlying civil, electrical, plumbing and other problems they have to find things that are wrong and prove to their clients that they have done a thorough job. So home inspectors will almost always find problems in a house – even brand new ones.
So when a home inspector comes around to do a detailed inspection of your house what is the best way to sell your house to him?
Well, the easiest thing to do is to make a small investment on your own – Hire a home inspector to assess your property before it goes for sale on the market. In fact many seasoned property investors willingly do this. This is called a pre-inspection. If your inspector finds issues that are likely to be found by the buyer’s home inspector then you can deal with it by correcting the problem and making necessary repairs before the buyer even walks through the door.
Consider a Pre-inspection
Having your house pre-inspected by a reputed home inspector will not cost much. Most good home inspectors in India charge a minimum of ₹ 15,000/- for a detailed home inspection going upwards as the area to be inspected increases.
Experienced home sellers and property investors know for a fact that either the buyer or his / her home inspector will find something wrong eventually – its just a matter of time. So as a home owner if you are aware of any major issues with your home and you believe that you will sail through the entire home selling process without the buyer coming to know about it – you’re sadly mistaken! People always find out things that are amiss and its better to declare every negative aspect of your property right at the outset to your property broker and the buyers. In fact it will cost you less in terms of money as well as heartbreak over a sale that never happened if there is complete transparency about your property.
Buyers Judge What They Cant See by What They Can See
You walk into any house whether small or big and you definitely wont see the plumbing and wiring behind the walls. You cannot see the rot that is taking place in the walls behind the wallpapers either because of water seepage or termite infestations. There are many such unseen problems related to wear and tear of a house that most people cannot see at first glance. But people do make assumptions on what they can see. So when there is rot under the doors, walls with peeling paint hanging loose, signs of water damage visible on ceilings and walls – judgements are made.
What is the point that we are trying to make here? In an earlier article we had mentioned the importance of using experts for any job. When it comes to selling your luxury property, among those experts is an experienced real estate agent who knows what the common inspection pitfalls are. At Gupta & Sen, due to our experience in selling scores of high end homes, we know what the common problems are and advise buyers to always get them fixed before putting their homes on the market. We point out these common problems that always attract the buyer’s attention when initially examining your house. A lot of times because sellers have been living for a long time in a house they fail to pinpoint these issues which become invisible to them over time. We spot potential problems and encourage sellers to get those problems remedied before the buyer and his inspector shows up. That way you do not have to part with unspecified sums of money that the buyer will demand in the form of a discount when negotiating the final sale price of your house. For e.g. a common problem in most apartments in India are leaks in ceilings and walls that need to be addressed. As a home owner you need to take proactive action and seal the leaks and paint over the stains. But more importantly, you need to locate the source of the leak and ensure that you fix it properly. It shows integrity when you pinpoint the cause of civil problems and fix the faults permanently instead of just patching things over (thookpatti kaam as they say in Mumbai :-P)
View Your Home Through Cold Heartless Eyes
Realise that as the owner of your house, you see your house every day through the eyes of your heart. But when the potential buyer, the appraiser and the home inspector come to see your house they are looking at your house through cold and calculating eyes devoid of any emotions because that is exactly how their role in the transaction requires them to behave.
As mentioned before you can prepare in advance for the buyer’s home inspector by getting your own pre-inspection done before your house hits the market. At the very least, associate yourself with a quality realtor who has experience selling homes such as yours in your area. The agent will be familiar with common problems that home inspectors are finding in homes in your area. That way you can deal with those issues before your home goes in the market.
Let me tell you that home buyers take even small cosmetic issues very seriously! They will take a mental snapshot of all those things that they see are wrong with your house and blow it out of proportion. If they see a problem they tend to magnify the problem. Why do they do it? Well, many a times sharp buyers will grab onto any opportunity they see to reduce the sale price! When a house needs a lakh worth of work they will try to knock off five lakhs off the price!
That is why smart home sellers make sure their homes are show-ready and perfect. And they understand that they have to sell their homes three times in order to get the money from the sale in their hands!