Home Appraisals

What Is a Home Appraisal Based on?

A home appraisal is a complex procedure for determining the value of a home, which is an important number for homeowners and potential buyers alike. Trained and certified appraisers look at several factors to determine a home’s value, including its permanent fixtures and the land it sits on. As homes change hands and values change over time, there’s always a need for new, accurate appraisals.

Physical Factors
Many of a home’s physical features help determine its value in an appraisal. Simple facts such as the age of the home, its square footage and the number of bedrooms or bathrooms can have a major impact on appraisal value. Homes that need significant improvements, such as a new roof, siding or driveway, will appraise for a lower value than those that don’t need as much work. The quality of the construction and the value of fixtures, including floor coverings, plumbing and appliances such as the furnace, air conditioner and water heater, also play into an appraisal.

To an appraiser, a home’s location may be as important as its physical characteristics. Most appraisals include a CMA, or comparative market analysis, which uses the sale price of similar nearby homes to help determine the fair market value of the home being appraised. Homes in more desirable neighborhoods–because of a better public school system, the perception of safety or the level of economic opportunity in the region–are likely to earn a higher appraisal than similar homes elsewhere. Other location features such as the views from a home and the degree of privacy from neighbors also play a role in the appraisal.

Housing markets are constantly changing as home values rise and fall. This happens because of the law of supply and demand as well as factors such as mortgage interest rates and the general condition of the economy. Appraisers factor economic conditions into their work. This means that a home with a low appraisal value may be a good investment opportunity if the appraisal is low as a result of the housing market and not because of any particular problems with the house itself.

Home appraisals have several different purposes. For homeowners looking to sell, they give an indication of what price the owner can expect to sell for, which may determine the entire marketing strategy for the owner and real estate agent. A buyer can use the appraised value of homes to compare the value of different neighborhoods and shop for a house only within a certain price range. Appraisals are also part of the home equity lending process, with lenders appraising homes to determine how much money the owner can borrow against the equity in the home.

Assessments are similar to appraisals but have a very different purpose. The process uses similar factors to determine a home’s value. However, whereas an appraisal is performed by a private appraiser for commercial purposes, an assessment is done by an agent of a local government for tax purposes. State and local governments use assessments to levy property taxes based on the value of taxpayers’ homes and real estate holdings.

…OK, a real world example in English please!
Consider a home with 2,000 square feet built 15 years ago, in an wide area of very similar homes in size and age. Average cost for these homes is $120/foot.  Now consider that one home is updated recently and has many upgrades that make it outstanding compared to the other homes in that area.  A kitchen update may cost $7,000, but this homeowner decided on a remodel that cost $25,000. Similarly they spent $12,000 on the master bath and $8,00 on hardwood floors. So we have ~45,000 spent on a home surrounded by homes with an average value of only $240,000.  Does that make this home worth $285,000?  More importantly, can an appraiser give this home a value far beyond the area’s market value. In short, it would be very hard to get this appraisal through underwriting.

This scenario is rather common and the sellers wonder why they cant get much more than their neighbor.  The key ingredient is “location” as it pertains to very similar homes.  The key to building value in updates is to understand the value of the updates WHERE YOU LIVE.  With the right current market information, you can determine what updates are appropriate for your home. Not unlike buying direct from a builder, taking a home remodel company’s word for it may be a little bias. To make the most of your investment, get real world local market data from your professional realtor.

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New Home Construction

Thinking of Building your “new” home?

Buying a new home is exciting. You get to build your dream from the ground up, choosing your lot, your model, interior finishes and upgrades. But like any home purchase, buying new construction is serious business, an expensive transaction with many financial implications – current area comps, long-term value, lot position, area utility, “included” features and upgrades that add Value (& ROI), loan options and more all require consideration.

That’s why it’s a good idea to obtain representation from a Realtor® when considering a new home purchase to answer your questions objectively and protect your interests.

Builder sales reps represent the builder.
Most often builders have their own agents on site to answer questions, assist people who walk in, and ultimately help with a purchase. Builder reps provide a valuable service: They can explain differences between models and floor plans and share information about financing options, upgrades and specials. But it’s important to remember that builder reps represent the builder, as they are contractually obligated to do.

Realtors are trusted local resources for real estate information and can help home buyers navigate the increasingly complex home-buying process,” said National Association of Realtors President Gary Thomas. “The buyer agency agreement ensures the buyer that his or her Realtor will represent the interests of the buyer alone and not the seller.

Common Misconception:  “Going to the builder will save you money”
In most cases this is not only incorrect but may have the reverse results, and actually cost you money.  All builders factor in marketing and commission expenses (if they wish to stay in business).  In fact, many depend on local agents to bring their buyers.  Even when they have an in house sales team the motivated buyers in the market are typically working with an agent.

A Local realtor will know the local comps and be skilled at discussing how the  new construction home will measure up over time based on current trends. Additionally, your Realtor will be a voice of reason when selecting options and upgrades that may or may not bring long term value to your home at time of resale.  Regardless what HGTV says, those upgrades are tied intimately to the norm of the area comps – that is to say that a $50,000 kitchen may be overboard for the area and return a street & an appraisal value of ~$10,000 when you go to sell. See my post regarding appraisal factors – http://gerardigroup.com/home-appraisals/

Some builders offer a hook to “save” you money
One of the less discussed scenarios a builder may use to avoid working with Realtors is that they either own their own brokerage or partner with an agency to list your current home at a “discount”.   What’s worse is the sell it or we buy it scenario – like Las Vegas, the cards are stacked for the builder.  If it is a discount on sales commission you are seeking, many local realtors will offer you a break on selling your home if you buy a new home with them. Why is this important:  are they builders or realtors, and is it simply a shell game to distract from the core issue = how much does the new home cost and what is it worth in today’s market?

Another tactic is using their lender…
Of course, what could be easier than buy direct from the builder, visit a hopped up model, drink their cool-aide and … (drum roll) use their lender.  These should send the hair up on the back of your neck and launch all the red flags in your brain as it is a distraction away from the price.  Why is this an important:  While the appraisal process is supposed to be arms length, the builder’s lender has skin in the game and the only thing between the buyer and the closed sale is the appraisal… the one that may be at least partially bias.

Bottom Line, you need ALL the info you can get your hands on
The cost of building is going up in both materials and labor.  Buying a home is the most important financial decision most people will ever make.    A local professional realtor can assist you with understanding the value of your investment before you take the plunge. Since Realtor fees are paid by the seller (in this case by the builder), consulting a Realtor should be a first step.  And when it comes to selling your home, note that 3% of the commission typically goes to a buyer agent – this is true with builder broker’s taking on your home. So, what do you really save?   Without all the data available to you, you may be risking more than a point or 2 in commission.

For additional information, contact Sam @ the Gerardi Group for market analysis, return on investment values and current trends.

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Selling This Fall

Here are five reasons listing your home for sale this fall makes sense.

1. Demand Is Strong

The latest Buyer Traffic Report from the National Association of Realtors (NAR) shows that buyer demand remains very strong throughout the vast majority of the country. These buyers are ready, willing, and able to purchase… and are in the market right now! More often than not, multiple buyers are competing with each other to buy a home.

Take advantage of the buyer activity currently in the market.

2. There Is Less Competition Now

Housing inventory is still under the 6-month supply that is needed for a normal housing market.

This means that, in the majority of the country, there are not enough homes for sale to satisfy the number of buyers in the market. This is good news for homeowners who have gained equity as their home values have increased. However, additional inventory could be coming to the market soon.

Historically, the average number of years a homeowner stayed in their home was six, but that number has jumped to an average of almost nine years since 2008. There is a pent-up desire for many homeowners to move, as they were unable to sell over the last few years because of a negative equity situation. As home values continue to appreciate, more and more homeowners will be given the freedom to move.

The choices buyers have will continue to increase. Don’t wait until this other inventory comes to market before you decide to sell.

3. The Process Will Be Quicker

Today’s competitive environment has forced buyers to do all they can to stand out from the crowd, including getting pre-approved for their mortgage financing. This makes the entire selling process much faster and much simpler as buyers know exactly what they can afford before home shopping. According to Ellie Mae’s latest Origination Insights Report, the time to close a loan has dropped to 43 days, after seeing a 12-month high of 48 days in January.

4. There Will Never Be a Better Time to Move Up

If your next move will be into a premium or luxury home, now is the time to move-up! The inventory of homes for sale at these higher price ranges has forced these markets into a buyer’s market. This means that if you are planning on selling a starter or trade-up home, your home will sell quickly AND you’ll be able to find a premium home to call your own!

Prices are projected to appreciate by 5.0% over the next year according to CoreLogic. If you are moving to a higher-priced home, it will wind up costing you more in raw dollars (both in down payment and mortgage payment) if you wait.

5. It’s Time to Move on With Your Life

Look at the reason you decided to sell in the first place and determine whether it is worth waiting. Is money more important than being with family? Is money more important than your health? Is money more important than having the freedom to go on with your life the way you think you should?

Only you know the answers to the questions above. You have the power to take control of the situation by putting your home on the market. Perhaps the time has come for you and your family to move on and start living the life you desire.

That is what is truly important.  So contact your local real estate professionals at the Gerardi Group to help you better understand your options in today’s market.  We look forward to assisting you!

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