Wait — What’s a Comp?
To understand that, and how appraisers choose comps, we first need to review the home financing process. When you’re the one selling a condo, your involvement in these steps will be minimal. Your buyer will (should) have been pre-approved for financing, thereby demonstrating his or her ability to buy the home and repay a loan. After you and the buyer come to terms on price, timeline, and any concessions, a purchase contract will be executed and provided to the buyer’s lender. From there, it’s up to them to navigate the process and get final approval on the loan as well as the clear to close.
But toward the end of that process, the buyer and his or her lender will order an appraisal (as well as a home inspection) to objectively but informedly determine the value of the home. As the seller, you most likely won’t see the appraisal on your condo or learn its appraised value. If the appraisal comes in under the agreed sale price, you would see it because you’d be able to challenge the appraisal or accept the new value.
How does the appraiser determine the value of your condo? Well, that’s where comps come in. A comp is an industry term for a comparable home sale. The appraiser will look at your home as well as the recent sales of homes similar to yours in the area. But how does the appraiser choose comps? Is there anything different for condos versus single-family homes?
A Quick Comps for Condos 101
When it comes to condos, appraisers have to consider more than just similar units within your building. The appraiser must analyze and use condos from both the surrounding neighborhood as well as your condo’s building. One must be within the same project or structure, whereas one can come from outside it. A third must be chosen, typically within the same building as your condo since it will resemble your unit’s design, layout, materials, etc.
The comps’ characteristics will be evaluated along with its sale price. Things the appraiser will look at include the number of bedrooms and bathrooms, the square footage or gross living area, and the style of the home. The appraiser will draft up a report detailing their findings as well as the comps. The buyer’s lender will then use this appraisal to ensure they’re not lending more money than the home is worth. Which brings us to the final point.
How to Challenge a Low Appraisal
Remember, as the seller, you won’t get access to the appraisal unless you request it. But how would you know to request it since you typically don’t get the appraisal? If the loan is declined, or if the buyer informs you they’re backing out, then you’ll know something is up. Request the appraisal via the buyer’s agent and review it in-depth. Appraisers are humans like everyone else, and mistakes do happen that result in mistakenly low-balled figures.
If there are mistakes, or if the appraiser didn’t take into consideration any improvements you made to your condo, make sure that information gets into the right hands. Notify your agent, the appraiser (if you can), and attempt to get a new or adjusted appraisal. Just be prepared that the buyer, by this point, may have already backed out, or their lender may simply not accept a separate appraisal. It’s a gamble, but if you have an opportunity with a buyer, it’s worth pursuing.
Ready to sell your condo with confidence? Choose Luxury Living Chicago Realty.