Monday, October 13, 2008

Appraisals - How Much Is This Home Worth?

Appraisals are very easy and simple to understand so we are going to keep this one short. Within the first 17 days of escrow buyers will need to have their lender order an appraisal to prove to the bank's investors that the property is worth at least as much as the loan they will be writing on it. Appraisers work for the lender but are often paid by the buyer via closing costs. The cost for an appraisal can range from $300-$600 depending on size, type, and location of property.

Appraisers are licensed and will visit the house, look at recently sold homes in the area, and combine this information with general market trends to determine a fair market value for the home. There is no need for a buyer to meet an appraiser at the property.

Many buyers confuse appraisal with inspection. Think of it like this:
Inspectors check for physical defect in the property, work solely for the buyer, and do not discuss value of the property.

Appraisers work solely for the lender and speak mainly about the value of the home based on recent sales.

In order for you to get a loan to purchase your home, it will need to appraise at least at the value of the loan you are proposing taking out. If it doesn't, you will either have to make a larger down payment or need to renegotiate the purchase price. If none of the above are possible, you will need to cancel escrow.

Very rarely do appraisals come in way above the purchase price as this can create major problems if the seller then has second thoughts. Since they work for the lender, their main job is to ensure that the lender is secured by property value not to give the seller an accurate estimate of his properties value.

Now that appraisals are out of the way, we are excited to bring you our next article on real estate contingencies.

Repairs - What Can You Ask For? What Can Happen?

So you've been through the comprehensive inspection report detailing all of the shortcomings of your soon to be new home. At this point, it is natural to feel a little apprehensive about proceeding with the transaction as there is undoubtedly more wrong with the home then you initially thought. This is a normal feeling and in most cases a night or two of sleep will help to put it all in perspective. Remember, most all of the homes on the market are used and do have some defects so it will be an impossibility to even find a home with zero areas of concern. The same also goes for new construction and probably even the property you are currently living within.

The real purpose for a home inspection is awareness. That means you, the buyer, now have the knowledge about the various shortcomings with your property and can make the best decision possible.

What Options Are There After A Home Inspection

Ask For Repairs - Most standard sellers will be open to making a few repairs to the property in order to ease buyer concern. Of course, the property is privately owned so the owner does not necessarily have to do any repairs and some will not. All of this depends on the motivation and general disposition of the properties current owner. It is common practice for buyers to ask for items listed as health and safety issues to be remedied before proceeding. Items such as exposed wiring, broken glass, unstrapped water heaters, and other potential hazards are the most commonly asked for repairs.

How much can you ask for? You can ask for as much as you like, and your certainly not limited to health and safety items, but generally 5-10 items is what we would consider average. Again, the chance of you getting these items fixed will depend on many factors including: the negotiations leading up to the escrow, the sellers feelings toward the buyer, market conditions, and the overall condition of the property. For example, a seller who has endured endless price negotiations leading up to escrow may have such ill feelings towards the buyers that he will not do any repairs to the property. This is also known as selling "as-is."

Ask For Credit - Sometimes in addition to or in lieu of asking for repairs, the buyer will ask for a cash credit to fix the problems on their own. Again, good judgement should be exercised here as it is not likely for a buyer to recieve a credit for a broken pool heater when the seller had been crediting the buyer for it in the negotiations leading up to escrow. Cash credits, on the other hand, can be advantageous as the buyer will be able to fix the problems in any manner they like without worrying about the seller picking an unqualified "low ball" contractor for quick fix. The buyer is not bound to use the money for repairs, in fact, they are free to spend it any way they see fit.

Proceed With The Sale - The above solutions can lead to the continutation of sale when both parties can arrive at a mutually beneficial arrangement. Sometimes, there are so few problems with the home that the buyer is just ready to proceed without any repairs. Other times the buyer will know going into escrow that asking for repairs will be pointless and if don't see any major issues, they also elect to continue on with the transaction. After a home inspection it is perfectly acceptable to continue on with the sale of the home with zero talk of repairs.

Cancel Escrow - Every once in a while the inspection will reveal more problems than the buyer can handle and the buyer will simply cancel escrow without penalty and continue on looking for another property.

Bank Owned And Short Sale Property - With bank owned property, the simple fact is that it is often sold "as-is" from outset so any hopes a buyer may have for repairs will be fruitless. Banks very rarely will acknowledge any information about the property given the unique way in which they acquired title to the property. Since it was acquired through foreclosure, they may have never been given any disclosures about the condition of the property and therefore are not willing to vouch for its shape.

Occasionally, banks will offer cash credit for repairs but they certainly are not under any obligation to do so. In fact, many banks price their properties so well that they recieve multiple offers and may be completely unwilling to accomodate a buyer asking for credit because they have so many backup buyers.

Short sale sellers may be more willing to do repairs and credits but this is often overshadowed by the slow process it may become to ask for considerations. Often times, asking for repairs can kill any time sensitive approval the bank has given so it may not be wise to demand them. More often than not, the price on short sales and bank repo homes is so competitive that it just may not matter to a buyer. This is obviously a good time to consult with your real estate agent about the overall value of the deal.

Some Other Ideas

When you do decide to continue on with a transaction, it would be an excellent idea to keep a copy of the inspection report so that you have some idea of problems you may want to look at remedying in the coming years. This advice alone will pay dividends when it comes time to sell your home.

Look for our next article on understanding your homes appraisal.