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Hey, Buyers: These Home Appraisal Tips Are for You

by The Schnoor Team

What to expect, when to negotiate, and how to deal when things don’t go your way.

Most people have deeply personal reasons for wanting to buy a home. Maybe it’s the bathroom that feels like a dreamy, modern spa. Or that two-tiered deck just made for parties.

Your lender doesn’t care about the freestanding tub. Or the built-in outdoor fire pit. Their only concern is that the house you buy is worth as much as the value of your mortgage.

To them, a house isn’t a home. It’s collateral. (Harsh, but true.) If someday, for some reason, you can’t make your mortgage payments, the lender can foreclose on the home and sell it to recoup all or some of its costs. (Even harsher, but also true.)

For that reason, a home must be valued at, or above, the agreed-upon purchase price, and this has to happen before you can close on a house. That’s where a home appraiser comes in.

A Home Appraiser Is Neutral (Like Switzerland)

After you sign a home purchase agreement (the contract between you and the seller about the terms of the pending sale), and before your lender approves your loan, the home you’re buying must pass an appraisal — an assessment of the property’s value by an unbiased third party: the appraiser.

An appraiser is a state-licensed or -certified professional. Their job is to assess an opinion of value —how much a house is worth. The appraiser is on no one’s side. They don’t represent you or the seller; instead, this person is a contractor chosen by your lender through an appraisal management company (AMC), a separate, neutral entity that maintains a roster of appraisers.

Appraisers survey a house in person, using five main criteria to determine the value of a home:

  • Location
  • Age
  • Condition
  • Additions or renovations
  • Recent sales of comparable homes

Be Prepared to Pay for the Appraisal — or to Negotiate

Generally speaking, the home buyer is responsible for paying for the appraisal — and the fee is typically wrapped into your closing costs. However, who pays for appraisal is negotiable. It never hurts to see if the seller is willing to cover it.

How much money are we talking about? The average professional home appraisal will run between $287 and $373, according to estimates by the home-professionals resource HomeAdvisor.com. Costs can vary depending on the square footage and quirks of the house, with higher appraisal prices for larger or more unique homes.

Appraisals Take a While, So Be Patient

Typically, a purchase agreement has a “home appraisal contingency” requiring that the appraisal be completed within 14 days of the sales contract being signed. Because it takes appraisers some time to visit your house and write a report — up to a week, or longer in a busy housing market — your lender will order the appraisal immediately after you sign the purchase agreement.

So, You Have a Valuation. Here’s What It Means — and What to Do Next

When the appraisal is finished, the appraiser issues a written report with his or her opinion of the value of the home. To produce the report, they use their analysis of the property and data from comparable homes, as well as review the purchase offer. The report will outline their methodology and also include photographs that they’ve taken of the property, inside and out.

You and your lender will both receive a copy of the report. Three things could happen next:

  • If the appraiser’s valuation matches the price you and the seller agreed to for the home: Your lender will proceed to underwrite your loan. Great news: This is the final step in your loan-getting process!
  • If the appraiser’s valuation is higher than what you’re paying for the home: Congratulations! You’ve gained immediate equity. How, you ask? Let’s say, for example, you’re paying $200,000 for the house. If the appraiser says it’s worth $250,000 — jackpot. That’s an instant $50,000 in equity. (Keep in mind, this is very rare.)
  • If the appraisal is lower than what you’ve agreed to pay for the home: Your lender won’t give you a loan for more than the appraised value. If you and the seller agreed on $200,000, for example, but the appraisal is $190,000, that creates a $10,000 shortfall. So what happens next?

Don’t despair — not yet. If you’re faced with a low appraisal, there are several ways the deal can still go through.

If an Appraisal Is Low, You Can Still Make It Work

Before we talk strategy, some reasons why appraisals come in lower than expected:

  • The seller overvalued the price of the home.
  • The appraiser isn’t familiar with the neighborhood.
  • The appraiser overlooked pending sales data.
  • The appraiser had trouble finding comparable homes, or missed comparable homes, so they compared your home with properties outside the neighborhood.
  • Home prices in the area are changing so fast that the listing agent’s price no longer reflects the market.
  • The appraiser rushed the job.

If the appraisal comes in low, your agent will offer recommendations about how to proceed. In general, your best strategy is to persuade the seller to lower the sales price, or to split the difference between the home’s appraised value and the price with you. This is when you can rely on your agent — and their negotiating skills — to go to bat for you.

You can also appeal the appraisal assessment. You’ll work with your agent to research comparable homes that support the sales price you agreed upon with the seller and present this information to your lender, who will forward it to the appraiser for a re-evaluation of the home’s value. Ultimately, though, it’s up to the appraiser to decide whether to revise their valuation of the property.

Alternately, you can ask your lender for a second appraisal, though there are caveats:

  • You’ll have to pay for it out of pocket (or persuade the seller to foot the bill).
  • You’re more likely able to challenge an appraisal for a conventional loan than a government loan. And you’d need solid facts to back it up in either case.
  • There’s no guarantee that it will be higher and meet the sales price.

The last option: You can come up with the cash yourself to cover the difference between the home’s price and the appraised value.

If you don’t want to take that route (and who could blame you?), a purchase agreement’s home appraisal contingency gives you the ability to walk away from the deal scot-free, and with your earnest money deposit in hand.

But today, let’s assume it all works out. With the appraisal behind you, you’ll be one step closer to closing on that house.

Source: "Hey, Buyers: These Home Appraisal Tips Are for You"

8 Lesser-Known Fees That Factor Into the True Cost of Home Buying

by The Schnoor Team

Application fees, appraisal, inspection … a lot of little costs start to add up. Here’s how to be prepared.

This article was contributed by financial expert and blogger Mary Beth Storjohann, CFP, author, speaker, and founder of Workable Wealth. She provides financial coaching for individuals and couples in their 20s to 40s across the country, helping them make smart, educated choices with their money.

With your focus on building your down payment fund and figuring out what your mortgage payment will be, it’s easy to overlook some of the smaller fees that come along with a home purchase. Here are eight and what they could cost you.

#1 Home Inspection

A home inspection helps protect you from purchasing a home that could be a lemon. So you don’t want to forgo it. Inspectors will look for signs of structural issues, mold, and leaks; assess the condition of the roof, gutters, water heater, heating and cooling system; and more. Inspections cost between $300 and $500, and whether or not you end up purchasing the property, you still need to pay this fee.

#2 Appraisal Fee

This appraisal report goes to your lender to assure it that the property is worth what you’re paying for it. This report worked in our favor a couple of years ago when our home came back appraised for $10,000 less than our bid; the sellers had to reduce their asking price in order to move forward. An apprasial can take about 2 hours and costs between $200 and $425

#3 Application Fees

Before ever approving you for a loan, the lender is going to run your credit report and charge you an application fee, often lumping the credit report fee in with the application fee. This can run $75 to $300. Be sure to ask for a breakdown of the application fees to understand all costs.

#4 Title Services

These fees cover a title search of the public records for the property you’re buying, notary fees for the person witnessing your signature on documents, government filing fees, and more. These can cost between $150 and $400, and it’s important to get a line item for each cost.

#5 Lender’s Origination Fees

Your lender will charge you this upfront free for making the mortgage loan. This includes processing the loan application, underwriting the loan (researching whether to approve you), and funding the loan. These fees are quoted as a percentage of the total loan you’re taking out and generally range between 0.5 to 1.5%.

#6 Survey Costs

This report ($150 to $400) confirms the property’s boundaries, outlining its major features and dimensions.

#7 Private Mortgage Insurance (PMI)

When you put down less than 20% on your new home, the lender requires that you purchase PMI, which is a policy that protects the lender from losing money if you end up in foreclosure. So PMI is a policy that you have to buy to protect the lender from you. PMI rates can vary from 0.3% to 1.5% of your original loan amount annually.

#8 Tax Service Fee

This is the cost (about $50) to ensure that all property tax payments are up to date and that the payments you make are appropriately credited to the right home.

Always ask questions when it comes to understanding the fees you’re paying. If possible, print out documents and go through them with a highlighter to indicate any areas you have concerns about. Discuss them with your lender or real estate agent and determine if you can negotiate any of them down.

Don’t be afraid to price shop to ensure you’re getting the best value. Just because you’re spending hundreds of thousands on a home doesn’t mean you should be comfortable throwing thousands of dollars at fees.

Source: "8 Lesser-Known Fees That Factor Into the True Cost of Home Buying"

Make an Offer Like a Boss

by The Schnoor Team

 

These 10 money- and time-saving steps can help you craft a winning bid.

Ah, the offer!

Cinematically speaking, this is the iconic moment — we’d forgive you if you imagined, say, putting a hand on your agent’s shoulder and whispering (in your best Vito Corleone) that you’re going to make them an offer they can’t refuse.

In reality, it’s not that simple (or dramatic). Your offer marks the beginning of a back-and-forth between you and the seller, typically with real estate agents advising you both.

The more intentional you are about your offer, the better your chances of making a successful bid. Follow these 10 steps, and you’ll be well prepared — that’s a true story. (“The Godfather” again. We couldn’t resist.)

#1 Know Your Limits

Your agent will help you craft a winning offer. You can trust your agent’s advice on price, contingencies, and other terms of the deal: It’s a mutually beneficial relationship. The more collaborative you are with your agent, the more quickly you’ll be able to move.

But ultimately, it’s you who decides what the offer will be — and you who knows what your financial and lifestyle limits are. Buying a home means mixing strong emotions with business savvy, so now is also a good time to reflect on your “musts.”

Have a top limit to your offer price because you’re also saving for retirement and love beach vacations? Stick to it. 

Want a vegetable garden or to paint your home’s exterior purple? Make sure your homeowners association rules permit it. 

Besides reading HOA rules, find out how much the HOA has in reserves to cover common area repairs. You don’t want to be slapped unexpectedly with a special assessment. 

Want a dog-friendly community? Make sure there are no pet weight limits or preventing you from cohabitating with your (extra-large) 

#2 Learn to Speak "Contract"

Essentially, an offer is a contract. The documents and wording vary across the country.

In the spirit of due diligence, take time to review sample offer forms before you’ve found a house (LawDepot.com has purchase agreements for each state). If you’re high-maintenance, a real estate attorney can explain the documents to you so you’re familiar with their vocabulary when you’re ready to pull the trigger on an offer with your agent. Your agent will have offer forms for your state. 

#3 Set Your Price

Homes always have a listing price. Think of it as the seller’s opening bid in your negotiation to buy a home.

As the buyer, your offer will include an offer price. This is the first thing home sellers look at when they receive a bid.

Your agent will help you determine whether the seller’s listing price is fair by running comps (or comparables), a process that involves comparing the house you’re bidding on to similar properties that recently sold in the neighborhood.

Several factors can also affect your bargaining position and offer price. For example, if the home has been sitting on the market for a while, or you’re in a buyer’s market where supply exceeds demand, the seller may be willing to accept an offer that’s below the list price. Or if the seller has already received another offer on the home, that may impact the price you’re willing to offer. Your agent will help you understand the context here.

#4 Figure Out Your Down Payment

To get a mortgage, you have to make a down payment on your loan. For conventional loans (as opposed to government loans), making a 20% down payment enables borrowers to avoid having to pay private mortgage insurance (PMI), a monthly premium that protects the lender in case the borrower defaults on the loan.

But 20% isn’t always feasible — or even necessary. In fact, the median down payment was 10% in 2017, according to the National Association of REALTORS®. Your lender will help you determine what the best down payment amount is for your finances. Depending on the type of loan you get, you may even be able to put down as little as 0% on your mortgage.

You might qualify for one of the more than 2,400 down payment assistance programs nationwide. Many of them make funds available to households earning as much as 175% of area median income. In other words, middle-income households. And the savings can be substantial: Home buyers who use down payment assistance programs save an average of $17,766 over the life of their loan, according to real estate resource RealtyTrac. Find out more about down payment assistance programs in your state.

You can use an online mortgage calculator to see how different down payments would affect your mortgage premiums and how much you’ll pay in interest.

#5 Show the Seller You’re Serious: Make a Deposit

An EMD — short for earnest money deposit — is the sum of money you put down as evidence to the seller that you’re serious (read: earnest) about buying the house. If the seller accepts your offer, the earnest money will go toward your down payment at closing. However, if you try to back out of the deal, you might have to forfeit the cash to the seller.

A standard EMD is 1% to 3% of the sales price of the home (so, that would be $2,000 to $6,000 on a $200,000 loan). But depending on how hot the market is where you live, you may want to put down more earnest money to compete with other offers. 

In most cases, the title company is responsible for holding the earnest money in an escrow account. In the event the deal falls through, the title company will disperse the funds appropriately based on the terms of the sales contract. Title companies also check for defects or liens on a seller’s title to make sure it can be transferred cleanly to you.

#6 Review the Contingency Plans

Most real estate offers include contingencies — provisions that must be met before the transaction can go through, or the buyer is entitled to walk away from the deal with their EMD.

For example, if an offer says, “This contract is contingent upon a home inspection,” the buyer has a set number of days after the offer is accepted to do an inspection of the property with a licensed or certified home inspector.

If something is wrong with the house, the buyer can request the seller to make repairs. But most repairs are negotiable; the seller may agree to some, but say no to others. Or the seller can offer a price reduction, or a credit at closing, based on the cost of the repairs. This is where your real estate agent can offer real value and counsel on what you should ask the seller to fix.

Just remember to keep your eye on the big picture. If you and the seller are bickering over a $500 repair to the hardwood floors, keep in mind that’s a drop in the bucket in relation to the size of the bid.

In addition to the aforementioned home inspection contingency, other common contingencies include:

A financing contingency, which gives home buyers a specified amount of time to get a loan that will cover the mortgage.

An appraisal contingency, where a third-party appraiser hired by the lender evaluates the fair-market value of the home to ensure the home is worth enough money to serve as collateral for the value of the mortgage.

A clear title contingency, where the buyer’s title company verifies that the seller is the sole owner of the property and can legally convey ownership to the buyer.

A home sale contingency, where the transaction is dependent on the sale of the buyer’s current home.

Although contingencies can offer protection to buyers, they can also make offers less appealing to the seller because they give buyers legal ways to back out of the sale without any financial repercussions. So, if you’re going up against multiple offers, making an offer with fewer contingencies can potentially give you an edge over the competition.

In other words: A chill offer is an attractive offer. But keep in mind you have to be comfortable with the risks that come with this strategy. If you don’t have a financing contingency, for example, and you can’t get a mortgage, you’d likely lose your earnest money deposit since you’re on the hook. (An outcome that’s decidedly un-chill for you.)

#7 Read the Fine Print About the Property

The sales contract states key information about the property, such as the address, tax ID, and the types of utilities: public water or private well, gas or electric heating, and so on. It also includes a section that specifies what personal property and fixtures the seller agrees to leave behind, like appliances, lighting fixtures, and window shades. The seller provides prospective buyers with a list of these items before they submit an offer. This can be another area of negotiation.

Carefully reviewing the property description also helps you know, for example, if the seller plans to take that unattached kitchen island with them when they move. (Stranger things have happened.)

#8 Make a Date to Settle

The sales contract you submit to the seller must include a proposed settlement date, which confirms when the transaction will be finalized. The clock starts as soon as the purchase agreement is signed. If you don’t close on time, the party that’s responsible for the delay may have to pay the other party compensation in the form of “penalty interest” at a predetermined rate.

A 30- to 60-day settlement period is common because it gives the typical home buyer time to complete a title search and obtain mortgage approval, but settlement periods can vary. Some sellers, for example, prefer a longer period so they have more time to move or look for their next house. Being flexible, with respect to the closing date, could give you more negotiating power in another area of the deal.

One thing that’s the same no matter where you live is that you’ll have a three-day period prior to settlement to review the Closing Disclosure, or CD — a five-page form that states your final loan terms and closing costs.

Once the sales contract is signed, the parties can change the settlement date if they both sign an addendum specifying the new day.

#9 Write a Fan Letter to the Seller

Want to make a truly compelling offer? Pull on the seller’s heartstrings by attaching a personal letter to the bid documents. Tell a compelling story about your family and your connection to the area. Get deep about your roots.

Also, sincere flattery can go a long way. Compliment the seller on how their kitchen renovation looks Apartment Therapy–worthy, for instance, or how the succulents in their landscaping remind you of a resort in Palm Springs.

Your agent can help you gather background on the sellers (e.g., are they crazy about their labradoodle, like you are about yours? Did they run a small business from the home, like you dream of doing?). And you should — of course — refer to information you gleaned during the open house or private showing. Use this intel to write a message that really speaks to the seller, and it may very well seal the deal.

#10 Brace Yourself for a Counteroffer

If you’re making a lowball bid or going up against multiple offers, the seller may decide to make you a counteroffer — a purchase agreement with new terms, such as a higher sales price or fewer contingencies.

At that point, it’s up to you to accept the new contract, make your own counteroffer to the sellers, or walk away.

Don’t panic: The next part of our guide walks you through the counteroffer process, and it offers strategies to give you more negotiating power.

Source: https://www.houselogic.com/buy/how-to-buy-step-by-step/tips-for-making-an-offer-on-a-house/?site_ref=mosaic

HOUSELOGIC
helps consumers make smart, confident decisions about all aspects of home ownership. Made possible by REALTORS®, the site helps owners get the most value and enjoyment from their existing home and helps buyers and sellers make the best deal possible. 

Your Real Estate Appraisal & You

by The Schnoor Team

A few years ago we were working with a family that needed to move sooner than later. We worked closely together to come up with the right price for their home so that it would sell fast and still get them maximum value.

It worked. Just a week after their home went on the market we had a good offer. A day or so after, we had an agreement. We were all very happy until the appraisal came in. The appraisal had the home valued at about $20,000 less than the agreement.

Since the sellers were happy to reduce the price to get the sale done, that's almost what they did. However, after close inspection they had questions, and we suggested that they can get a second opinion. It turns out that there were significant differences in what each appraiser thought was a comparable home. The second appraisal came in fine and the buyers, sellers and bank all agreed on the original price.

Here are a few things to know about appraisals:

Appraisals are not an exact science

It's important to know exactly what an appraisal is and isn't. It isn't exact and there is always room for error. When comparing your home with other sales, one appraiser may count a certain home while another may think the sale was too old, too different, or too far way. This can result in different appraisals.

Appraisals are snapshots

As the market changes, so will the value of your home. This shift can take place at any time.

Appraisals are different than CMAs

Realtors use their professional experience to give you a comparable market analysis. A CMA gives you
an idea of how much your home will sell for in a specific period of time.

You can ask for a second opinion

This may be the most important thing. If my sellers hadn't asked for a second opinion it would have cost them about $20,000. Just because one appraiser used different homes to compare their home with than the other appraiser did.

If you are going to refinance or sell you home, you will be asked for an appraisal. Work with a professional Realtor to be sure that everything is done accurately.

Displaying blog entries 1-4 of 4

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