No, you do not need to order an appraisal before you ask for offers. A buyer will want to confirm what the property is worth, and that valuation is arranged by the buyer as part of the checks made before closing.
What to give for a first quote
Your own estimate is enough to start. When you send us your note details, give the address, the type of property, its condition as far as you know it and what you believe it would sell for today. Keep the estimate realistic, because a quote built on an optimistic value is the first to be revised.
If you have an appraisal from when you sold the property, or a later one, send it too. It may firm up the first quote. It will not stand in for the buyer’s own valuation, since values move over time and a buyer wants a current figure from a source they chose. So a new appraisal ordered before you hold an offer is unlikely to pay for itself.
Why a buyer cares about the property
A buyer is paying for your payer’s promise to pay, and the property is what stands behind that promise. If the payments stop, the property is how the note holder recovers the money, so its value limits how safe the note can be.
Buyers measure it with two ratios. Loan-to-value compares the balance owed with the property’s value. Investment-to-value, or ITV, compares the price the buyer pays for the note with the property’s value. The lower these ratios, the more protection the buyer has and the more they can pay.
How the buyer confirms the value
Once you accept an offer the buyer checks the file, a stage called due diligence, and confirming the value is part of it, by one of these methods:
| Type of valuation | What it is |
|---|---|
| Broker price opinion | A local real estate agent’s estimate, based on recent sales and a look at the property. See what a broker price opinion is. |
| Drive-by or exterior valuation | An estimate made from the street, without going inside. |
| Automated estimate | A computer-generated figure from public sales data. Useful as a first check, less reliable for unusual properties. |
| Full appraisal | A licensed appraiser’s report, which can include an interior inspection. A buyer is more likely to want one where the note is large or the property is commercial. |
The choice depends on the size of the note, the property type and the buyer’s policy. Your payer lives in the property and is not a party to the sale, which is why exterior methods are favored where they will do.
Who pays for it
Practice differs from buyer to buyer: some absorb the cost and some deduct it from your proceeds at closing. Ask before you accept an offer, and ask for the answer on the worksheet so that you are comparing net amounts. Be cautious if a buyer wants you to send money for a valuation ahead of closing.
If the value comes in low
A valuation below the figure the quote was based on leaves the buyer with less protection, and the price may be reduced as a result, which is a legitimate reason for an offer to change.
Ask to see the valuation or its summary and check the sales it relied on. If it got a fact wrong, such as the size of the lot, say so and ask for a review. If it is sound, you can accept the revised price, try another buyer, sell a smaller part of the note or keep it.
A note appraisal is a separate thing
A property appraisal values the real estate. A note appraisal is a formal written opinion of what the note itself is worth, sometimes needed for an estate or a divorce, and you can sell a note without one.
What to send with your estimate
Along with your figure for the value, note anything that would move it: recent repairs or damage, how the property is used, and whether the taxes and insurance are up to date. Then ask that each offer state the property value it assumed, so you can see in advance what a lower valuation would do to the price.
Related questions
Will someone need to go inside the property?
Often not. A valuation for a note sale can be made from the street or from sales records, and buyers favor those methods because the payer lives there and is not part of the sale. A large note or a commercial property is more likely to call for a full appraisal with an inspection.
Can I use the appraisal from when I sold the property?
Send it, because it helps a buyer form an early view. It will rarely replace a current valuation, since values change and buyers want a recent figure from a source they chose.
What if I disagree with the buyer's valuation?
Ask for a copy or a summary and check the sales it relied on. If a fact is wrong or a relevant sale was missed, point it out and ask for a review. If the valuation stands, you can accept the revised price, approach another buyer, sell a smaller part of the note or keep it.