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Residential Appraisal Components and Misconceptions

One of the requirements that mortgage lenders will request during the home buying process is a real estate appraisal. For many first time buyers, there may be some misconceptions as to exactly what this is.  A real estate appraisal is a detailed report that is created by a licensed appraiser in your state and establishes the market value of a residential property. This is a very important aspect and several different considerations go into an official appraisal, and it forms the basis of the bank’s determination of the loan value. While appraisals do consider market comparisons, the actual appraisal value comes from much more than a market analysis.

Here are the components of a residential appraisal:

  • Property details
  • Comparisons  to at least three similar properties
  • Evaluation of the market conditions in the area
  • Environmental conditions that could decrease the property’s value
  • Structural issues that could decrease the property’s value
  • Estimate of time on the market
  • Status of the home site – new development, established neighborhood, acreage

Common misconceptions

  1. Appraisals aren’t the same as home inspections
  2. Appraisals are owned by the lender and not the buyer
  3. Assessed values don’t necessarily match market value
  4. Realtors do not provide appraisals
  5. Consumers do have the right to question appraisal facts and contest them

Understanding the neighborhood and ‘comps’ are an important part of your buying experience, but you are also bound to the official appraisal given to the lender. Work with your realtor, lender AND appraiser to make sure you understand all the details in the appraisal report of your new home.

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Home Loan Denials

The current real estate market is one that favors buyers. Record low interest rates, low home prices and a large inventory are all favorable for potential homebuyers looking for a new home. The problem facing thse homebuyers is that is obtaining financing for a new home can be a challenge in this difficult economy. Many mortgage lenders have tightened their requirements. However, it is important for homebuyers to realize that it isn’t always the lenders fault. Of course they would like potential customers to assume that they will be approved but the loan industry is a very risky one right now and they have to protect their assets.

Many potential homebuyers are finding that their application has been denied, so if you have been denied recently or in the past for a loan, it’s time to take control of the situation. Educate yourself, ask questions and do your research to help change that NO answer to a YES answer! Here, to help you out are some suggestions.

  • Consider a co-signer if your income simply is not high enough to qualify for the actual loan. The co-signer’s income can possibly be considered as an amount towards your loan regardless if the person is living with you or helping you pay the actual bill. In many cases, the cosigner might also be able to compensate for your low credit. It is important however to understand that there are risks for your cosigner and if you default on your mortgage, the lender can actually in turn go after your cosigner for the full amount!
  • Wait it out.  Sometimes the best advice you can get, especially if the conditions in the housing market is slow or the economy is bad, is to simply wait. Oftentimes when conditions improve in the economy, the lenders will be more willing to let you “borrow” the money for your loan. While you are waiting, you can take this time to work on your credit score. While you are waiting, home prices could also drop!
  • Consider a less expensive property. We all want what we want, but you might have a better chance of being approved if you switch to a less expensive option. For example, if you wanted a house, but you cannot wait and you cannot qualify for the loan, you might consider switching to a smaller home or to a town home instead. Later on down the line when your financial situation improves, then you can trade up the property and move to the location and home you really want to.
  • Apply with a different lender. The world is full of lenders, if you don’t like what one says or you get denied – try someone else! However, if every single lender you go to denies you, you should become aware that it is for a reason – in fact, if they all list the same reason then you will know what you need to fix.  Use common sense and stay away from predatory lenders. We have heard some pretty scary stories about these places – so just don’t do it. You could literally be signing your life away.

If you are denied, it is important to not give give up and keep trying! Work on your credit and then in a few months try again! With a little time, patience and understanding, you could be able to turn the situation around to your favor!

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What You Should Know About The Home Seller Disclosure

Home seller disclosures are mandatory in many states and are becoming more common regardless of the state or federal requirements. A home seller disclosure is statement signed by both the home seller and the buyer listing all the pre-existing conditions of a home that could potentially affect the property value or future ability to sell.

A home disclosure is the responsibility of the seller – not the realtor or listing agent. While guidelines and disclosure forms can vary state to state, a federal disclosure for lead-based paint is required if the home was built prior to 1978. In fact, most disclosure guidelines are directed at older or existing homes, rather than new construction.

Material Facts are an important part of seller disclosures. A material fact can be any defect or situation that can impact the buyer’s decision to move forward on the purchase or the price and terms of the property sale. Here are some examples:

  • Structural defects
  • Property taxes
  • Fire or flood damage
  • Death in the home

Personal situations such as divorce, separation, job loss and other intimate matters are NOT material fact and do not have to be disclosed.

In new subdivisions, builders may choose to give additional disclosures such as future land use plans for new roads, new commercial projects, transportation intrusions (like air or rail traffic noise) and other issues that could impact a person’s decision to choose a certain neighborhood. While these disclosures may not be mandatory, current trends lean toward over disclosure to avoid possible litigation down the road.

Home seller disclosures are another piece of the home buying puzzle, but with a little due diligence, you can make them fit. Know your rights, and know what you are buying, and all the pieces will fall into place.

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The Closing Process

You have searched for homes for weeks, visited several open houses and now you have finally found the pefect home. The final part of the buying process is called closing. For firstime homebuyers, this final step can  be confusing and may leave the buyer with many questions. Below are a few clarifications.

What exactly is closing?

Closing  is an arrangement in which a disinterested third party, called an escrow holder, holds legal documents and funds on behalf of a buyer and selle. They then distribute them according to the buyer’s and seller’s instructions. The escrow becomes the depository for all monies, instructions and documents pertaining to the purchase of your home.

How does the closing process work?

When you close, all monies, instructions and documents necessary for the purchase of the home, including funds for the down payment, lender’s funds and documents for the new loan are held in escrow. The duties of an escrow holder include: following the instructions given by the principals and parties to the transaction in a timely manner; handling the funds and/or documents in accordance with instructions; paying all bills as authorized; closing the escrow only when all terms and conditions have been met; and, distributing the funds in accordance with instructions.

What information will I have to provide?

Typically you will be asked to complete a statement of identity as part of the necessary paperwork. Because many people have the same name, the statement of identity is pucused to identify the specific person in the transaction through such information as date of birth, social security number, etc. This information is kept confidential.

How long is the closing process?

The length of closing is determined by the terms of the purchase agreement and can range from a few days to several months. Typically it can take  an average time of 30 to 45 days.

Who is responsible for the closing costs?

How the charges for the services performed during closing  can vary.  The fees and service charges to be divided might include, the title insurance policy premium, escrow fee, and any transfer taxes. Unless there is some special agreement between the buyer and seller as to how these charges are to be paid, local custom will generally be followed in drafting the instructions to the escrow holder as to how they are to be divided.
 

When does the closing process end?

The closing process ends when all funds are transferred accordingly, when all documents are signed, and when you get the keys to your new home.

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How To Have A Successful Negotiation

When it comes time to sell your home or if you are buying a new home , you will come to a point in the transaction where you will need to have a negotiation.  The negotiation process can be both complex and confusing for both sides. Of course the seller wants to get the highest amount they can and the buyer also needs to feel they have achieved the best deal. If  this is your first  negotiation or even if you are seasoned at this process, below are some tips to help you get the most from the negotiation transaction.

1. The current real estate status is a “buyers” market, where most sellers are very motivated to sell, this can give a buyer the upper hand. On the other side, in a “sellers” market, or a market where housing supply and demand are roughly equal might give the seller an advantage. If possible, you want to be in the market at a time when it favors your position as a buyer or seller.

2. Always pay attention to the details. Buyers and seller pay a lot of attention to the actual transaction price. Don’t overlook the  other perks or benefits that can add to the overall worth. For example, if you negotiate that the roof be replaced or perhaps having the seller pay some of the closing costs this can sweeten the deal. Don’t be stuck with the idea that the purchase prince is the only financial gain to the transaction.

3. Don’t forget about financing. Keep in mind that there are several factors that can impact the final sale:

 • Has the buyer been pre-qualified or pre-approved by a lender? Having buyers that are “pre-qualified” or “pre-approved” are more likely to pose less risk than a buyer who has never met with a lender. This also shows the seller that they are serious about the offer and will give the seller more confidence. that they are a qualified buyer.

 •If there is a low interest rate, then there will be a larger selection of potential buyers. More buyers equal more potential demand, which is good news for sellers. On the downside, high interest rates will cause buyers to be more selective or cause them to withdrawal from the market all together.

 •The traditional 20% downpayment is not standard anymore. If the buyer has good credit, loans with 5 percent down or less are now widely available. Many loans where 100 percent financing are still available, although not as much as a few years back.

 Negotiation is an important tool of the real estate transaction. To be a successful home seller or buyer you should have a basic understanding of negotiation methods, knowing the motivation of the other party and adapting to their style.