Do I Really Need an Appraisal?

Do I really need an appraisal before I list my home?

Before listing your home for sale, you may opt to have an appraisal or a measurement-sketch to verify the correct square footage.

“I plan to list my home for sale this Spring. I’ve heard of sellers getting an appraisal before putting a home on the market. Is this wise, or are there better options to help me get the most out of the selling process?”

That’s a great question, and it all depends on the home, the current market and what you’re trying to accomplish. I’ll break down three different scenarios to show what options would be best.

Scenario 1: Let’s say you have a home that is unique to the market. Maybe the home was architecturally designed or has some unusual features that are selling points. Because of the home’s uniqueness, it may be difficult to find neighboring sales as a means of comparison to determine the right list price. In this case, it might make sense to have an appraisal in hand so that you’re not leaving money on the table, so to speak.

Scenario 2: In the second scenario, let’s say your home is fairly similar to homes in your neighborhood, but there’s a discrepancy with the square footage. Maybe the public records lists the home as 2200 sqft, but other documents show a 300 sqft difference. In this case, you might be better off having the square footage verified with a measurement-sketch, but not an appraisal.

Scenario 3: In a different circumstance, the listing agent (the agent that represents the home seller) may be unfamiliar with the area and could benefit from doing a one-hour consulting session with an appraiser. There is good reason to believe the home’s actual size is what’s stated on the public records. There have been no major structural modifications or additions, and the home conforms to others in the neighborhood. A consulting session could assist the listing agent in understanding what factors influence value, both the neighborhood and the home itself. Greater market knowledge can help the agent best market the property and what deficiencies to attempt to correct prior to listing the home.

The addition of a sunroom can add significant square footage to a home. Depending on the construction quality, materials and functionality, it might meet the standards to be considered “living area” square footage.

A measurement-sketch is a good option if there’s uncertainty of the home’s square footage.

The absence of building permits is the most common reason why a home addition’s square footage is not included in the public records. This can include unpermitted garage conversion to living space or a former enclosed patio conversion. If permits were never completed, the additional square footage may not be accounted for in the public records.

If the addition or conversion has a finished interior, conforms to the remainder of the dwelling (both interior and exterior), and has a permanent heating system, it might meet the standards for “living area” square footage, even if no permits were obtained.

Sometimes a home with an unpermitted addition will change ownership multiple times over the span of a few decades. If your home has an older addition that you believe may not be accounted for, a measurement-sketch is the best way to determine the correct square footage and whether the addition can be considered as a finished living area.

“Would a sunroom be considered a finished area? Could we include it as square footage of the home?”

It really depends on the quality of the structure and materials/finishes, whether it has a permanent heating system, the method of which it is attached, and whether it conforms to the remainder of the dwelling. Another consideration is whether the market considers the sunroom equitable to finished living areas without sunrooms or similar amenities. While the sunroom may provide additional value to the property, it might not be appropriate to include the sunroom square footage with the living area square footage, at least not in an appraisal report.

Often times, listing agents will combine the main living areas and a secondary area as square footage figure on the MLS listing. For example, the living area of a 1500 sqft home and a 250 sqft sunroom might be combined, representing the home as 1750 sqft on the MLS listing. In a notation in the comment section, there should always be a reference to the breakdown of each area as to avoid any misrepresentation of the property. There are some secondary areas or additions that simply do not qualify as a finished living area and should not be included in the square footage of a listing. Each MLS has a different set of requirements and standards; your real estate agent should be able to discern the best way to represent and market your home.

“What is a Measurement-Sketch anyway?”

A measurement-sketch is a diagram of the home’s division of space. For example, the areas that are considered finished areas include the kitchen, bathrooms, living rooms, bedrooms, hallways, entryway, dining rooms, dens or bonus rooms. These areas have interior floor coverings and finishes, permanent heating systems and interior fixtures. The measurement-sketch will show an overhead view of these combined areas and the total square footage. A garage is considered an unfinished area; this area will be separate from the interior finished area. Any additional structures, such as an enclosed patio or porch, will also be measured.

The three spaces above—finished interior, garage, and enclosed patio—will have separate square footage figures. The sketch of the home will also show all the dimensions of each space.

Having a measurement-sketch will provide clarity on the home’s square footage without the need for an appraisal.

I’ve seen on numerous occasions where a homeowner attempts to order an appraisal when a measurement-sketch would better suit their needs (and be much less expensive!) This can apply to both home sellers and home buyers. Cash buyers can also benefit from having a measurement-sketch. If a home sale includes a federally financed transaction, an appraisal is typically ordered in the financing process. The appraisal usually includes verifying the square footage of the home. This process helps ensure that the buyer is aware of the size of the home. For cash purchases, the appraisal process is often skipped as it’s not a closing requirement. It can still be a wise choice to confirm that the size of the home is being accurately represented prior to closing escrow.

If the home’s square footage is greater than what the public records show, you might be leaving money on the table.

I see this quite frequently, and it can have major consequences for the home seller. Say a home is 2500 sqft, but it’s listed as 2100 sqft because the public records have mistakenly recorded this home as being 400 sqft smaller. The real estate agent listing the property is unaware that the public records are incorrect. They list the home through MLS and market the property as being 400sqft smaller than its actual size. This can result in offers that are lower than market value AND eliminate prospective buyers whose minimum search criteria exceeds 2100 sqft. In this case, the home seller receives lower offers, and a smaller pool of buyers. The nominal fee of a measurement-sketch can help avoid a significant monetary loss in the home selling process.

Note: each Multiple Listing Service has their own set of rules and guidelines to follow. Real estate agents should verify any rules regarding listing criteria for square footage.