Whether you’re a buyer or a seller, the appraisal is one of the most critical and, for many, the most nerve-wracking parts of a real estate transaction. It’s the moment a third-party expert determines the true value of a property. While the process has a standard procedure, today’s fast-paced Montana market presents unique challenges that both buyers and sellers need to be prepared for.
What is an Appraisal and Why It Matters
An appraisal is an independent, professional valuation of a property’s worth. It is typically required by a lender to ensure the home's value is sufficient to secure the mortgage. An appraiser’s opinion of value is based on the home’s features, condition, and, most importantly, the recent sales of comparable properties (comps). Appraisals are not the same things as inspections, but still are a critical aspect to both buyers and sellers in a transaction.
For Buyers
The appraisal confirms that you are not overpaying for the home and that the lender is not at risk. If a home "appraises low" (i.e., for less than the agreed-upon price), it can create a financing gap that the buyer must cover. A lender will not lend more than the value of the home, the loan isn't for anything additional. If a buyer cannot cover the difference, the deal may fall through. Most buyer offers are contingent on financing due to appraisals for this exact reason.
For Sellers
A successful appraisal means the buyer’s financing is secured, and the sale can move forward. A low appraisal, however, can put the entire transaction in jeopardy.
The Unique Appraisal Challenges in Montana
It's no secret that real estate in Montana has fluctuated quite dramatically in the past five years. Today’s Montana market, which is now more balanced and stabilizing, presents a new set of distinct hurdles for the appraisal process "recovering" from our crazy pace of the years past.
The Comp Conundrum
With sales volume slowing down from its peak, appraisers may struggle to find a significant number of recent comparable sales. This lack of data can make it more challenging to justify a property's value, particularly in rural or niche markets where sales are already infrequent. This is more common in those rural or niche markets as opposed to the high populated cities like Bozeman, Montana. My best opinion or this issue is that it is for sure leveling out and appraisers have enough market data to pull accurate appraisals.
A Word on the State Tax Reappraisal
It's important to understand the difference between a real estate appraisal (for a lender) and a tax appraisal (for the state). While a real estate appraisal is a detailed, one-time valuation for a specific transaction, the Montana Department of Revenue conducts a statewide reappraisal every two years to determine a property's assessed value for tax purposes. This process is entirely separate, but it's a critical part of a property's financial picture. Your property's value for tax purposes may be changing, even if a buyer's appraisal comes in at a different number. For a deep dive into the state tax laws and how they impact you, be sure to read my blog on the topic below.
Preparing for a Successful Appraisal
Both buyers and sellers can take proactive steps to ensure a smooth appraisal process.
Sellers: Be a Guide for the Appraiser
While an appraiser is independent, you can help them by providing a list of all recent upgrades and major repairs you have made. This includes things like a new roof, windows, HVAC system, or any significant renovations that may not be obvious. Being there for their scheduled appointment to help grant access to all outbuildings, etc is also helpful for appraisers. Make sure the home is tidy, uncluttered, and all areas are accessible. A well-maintained home will always make a better impression.
Buyers: Be Prepared for an Appraisal Gap
In today’s market, it’s always a possibility that the appraisal will come in below the agreed-upon price. Discuss this with your lender and be prepared with a plan to cover the difference with cash or to renegotiate with the seller. The answer is always "no" if you don't ask; you can always counter your offer based off the appraisal price.
The appraisal process can be a source of anxiety, but it doesn’t have to be. By understanding the unique factors at play in today’s Montana market and being prepared for the potential challenges, both buyers and sellers can navigate this crucial step with confidence.
Rebecca Quackenbush
REALTOR®, SRES,
Distinctive Properties
406.580.2307
rebecca@eralandmark.com
1805 W Dickerson St, Ste 1
Bozeman, MT 59715
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