Tag Archives: appraisals

10 Signs to Watch out for to Avoid Renovating a Money Pit

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12 home inspection issues buyers can leverage to negotiate the sale price

Photo: James Bombales

Waiving a home inspection is like purchasing a used car on Craigslist without taking a look under the hood — you’re likely to run into issues down the road. A new survey from the online home improvement marketplace, Porch, reveals that 86 percent of home inspections uncover one or more problems that need to be addressed. While hiring a home inspector will set you back about $377 on average, their expertise could save you from buying a lemon or shelling out thousands of dollars in future repairs.

Prospective homebuyers can use the information provided by a home inspector to negotiate a lower sales price, accounting for the cost of repairs or replacing a feature altogether. Of the 1,000 individuals surveyed by Porch who hired a home inspector, 37 percent submitted a revised offer with help from their real estate agent, saving an average of $14,000 off the listing price of their new home. That’s no small chunk of change!

Here we examine the most-flagged home inspection issues buyers can use to negotiate the best sale price.

Photo: James Bombales

1. Roof – flagged in 19.7% of reports

Roofs with asphalt or cedar shingles have an average lifespan of 20 years whereas metal roofs only need to be replaced every 50 to 75 years. Your home inspector will look for signs of water damage, mold or algae, and take note of any sagging or missing shingles.

2. Electrical – flagged in 18.7% of reports

If you’re looking to purchase a home built prior to the 1950s, you’ll want to inquire about its electrical wiring. Knob-and-tube wiring, which was popular from the 1880s to the 1940s, can cause electrical shocks and fire. Other issues to take note of include exposed wiring, ungrounded wire receptacles and paint on electrical outlets.

Photo: James Bombales

3. Windows – flagged in 18.4% of reports

While broken windows are a pretty obvious spot, your home inspector may conduct a simple test to check for air leaks. However, there’s no guarantee the home owners will agree to repair the window seals — some consider this cosmetic, rather than structural.

4. Gutters – flagged in 16.9% of reports

Your home inspector will want to make sure the gutters are in good working condition, assessing their size, any damage, and how far water is directed away from the house.

Photo: James Bombales

5. Plumbing – flagged in 13.6% of reports

Plumbing problems can quickly add up, costing an unsuspecting homeowner thousands of dollars. With a flashlight in hand, your home inspector will scan for potential leaks, polybutylene piping, DIY projects gone wrong, tree root damage, and more.

6. Branches overhanging roof – flagged in 13.3% of reports

Having an old-growth tree in your front yard might seem like a selling point, but it can actually cause a lot of damage if not properly maintained. Branches can rip off roof shingles, leaves can pile up and clog up your gutters, and heavy limbs can come crashing down into your living room.

Photo: James Bombales

7. Fencing – flagged in 12.6% of reports

Home inspectors will evaluate the condition of a fence that lines the property. But again, this is one of those “choose your battles” situations. Are you willing to risk losing out on your dream home because a few pickets have gone missing? Probably not.

8. Water heater – flagged in 12.2% of reports

While a rickety fence may be no big deal, a busted up water heater certainly is. Home inspectors check for things like water leaks, sediment buildup, corrosion on the pipes, and low water pressure.

Photo: James Bombales

9. Driveways, sidewalks, patios, entrance landing – flagged in 11.9% of reports

Cracks in your driveway or patio are pretty much inevitable. That being said, you’ll want the home inspector to ensure water isn’t seeping into those crevices. If major issues do turn up, you may be able to seek compensation for those repairs.

10. Air conditioning – flagged in 9.9% of reports

According to the Porch survey, most homebuyers negotiate only $500 for AC repairs, but the actual costs are much higher — think thousands of dollars, not hundreds.

Photo: James Bombales

11. Exterior paint – flagged in 9.6% of reports

If the house was constructed before 1979, your inspector will likely conduct a lead paint test. Additionally, if the exterior paint is peeling, some lenders (like the Federal Housing Administration and Veterans Affairs) will not approve the loan due to concerns over health and safety.

12. Foundation issues/cracks – flagged in 8.9% of reports

Home inspectors can look for obvious signs of foundation problems like cracks in basement walls, damaged bricks and uneven floors. If you and your home inspector suspect the problems are serious, you may want to bring in an engineer. But consider it money well spent — foundation fixes can cost $10,000 or more. Gulp.

Source: Livabl.com –  

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Preparing for a House Appraisal

How to Get a Home Ready for an Appraisal

Whether you are selling, purchasing or refinancing a home, the lender’s appraiser has the final word on how much money the home is worth. Therefore, the appraisal can make or break the real estate transaction. Unlike a home inspection, where the inspector determines any existing mechanical or system problems in the house, the appraiser’s job is to compare your house against comparable homes that have recently sold to determine its market value. Some items on the appraisers list you can’t change, such as location, but others, such as condition and updating, depending on your budget, may be appropriate tasks to perform to prepare your house for an appraisal.

 

Cleaning and Organizing

While these may not be the most desirable tasks, cleaning, organizing and removing clutter from your house are among the best ways to prepare for an appraisal. A clean home looks well-maintained – something the appraiser will be looking for. Organizing the garage, closets and cupboards helps them appear larger, which is a great way to add value. Finally, removing excess clutter from your house, such as items on counter tops, makes a room appear both larger and cleaner.

Whether you are selling, purchasing or refinancing a home, the lender’s appraiser has the final word on how much money the home is worth. Therefore, the appraisal can make or break the real estate transaction. Unlike a home inspection, where the inspector determines any existing mechanical or system problems in the house, the appraiser’s job is to compare your house against comparable homes that have recently sold to determine its market value. Some items on the appraisers list you can’t change, such as location, but others, such as condition and updating, depending on your budget, may be appropriate tasks to perform to prepare your house for an appraisal.

Curb Appeal

Check out how your home stacks up against those that have recently sold in the area insofar as its exterior appeal, also known as curb appeal. The outside of your house makes a first impression on the appraiser, so make it is as clean and de-cluttered as the interior. Tidy up the landscaping and spread some fresh mulch in the landscape beds. Remove any toys or other clutter from the front yard. A well-maintained yard gives the impression of a well-maintained home.

Whether you are selling, purchasing or refinancing a home, the lender’s appraiser has the final word on how much money the home is worth. Therefore, the appraisal can make or break the real estate transaction. Unlike a home inspection, where the inspector determines any existing mechanical or system problems in the house, the appraiser’s job is to compare your house against comparable homes that have recently sold to determine its market value. Some items on the appraisers list you can’t change, such as location, but others, such as condition and updating, depending on your budget, may be appropriate tasks to perform to prepare your house for an appraisal.

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Make Necessary Updates

Fresh paint is an easy and inexpensive way to add value to your house. This is especially necessary if you have wild or unusual wall colors, advises Loreen Stuhr, an appraiser with Appraisers of Las Vegas. She recommends painting the walls in neutral colors and replacing vinyl flooring with wood, laminate or tile. If it’s in your budget to do so, consider replacing laminate counter tops with tile, granite or other more upscale materials.

Whether you are selling, purchasing or refinancing a home, the lender’s appraiser has the final word on how much money the home is worth. Therefore, the appraisal can make or break the real estate transaction. Unlike a home inspection, where the inspector determines any existing mechanical or system problems in the house, the appraiser’s job is to compare your house against comparable homes that have recently sold to determine its market value. Some items on the appraisers list you can’t change, such as location, but others, such as condition and updating, depending on your budget, may be appropriate tasks to perform to prepare your house for an appraisal.

Repairs

Fix any maintenance issues that the appraiser is sure to notice, such as leaking or dripping faucets, running toilets, torn screens, missing trim and missing or wobbly stairway handrails. If the home buyer is using a loan backed by the Federal Housing Administration (FHA) to purchase the house, keep in mind that FHA requires that the seller repair anything that affects the health and safety of the occupants. An FHA-approved appraiser is required to make note of such property conditions, including an assumption of the structural integrity of the property. Items that require repair before the close of escrow include providing adequate access and exit from the bedrooms to outside the home, leaky roofs, foundation damage and flaking lead paint.

Whether you are selling, purchasing or refinancing a home, the lender’s appraiser has the final word on how much money the home is worth. Therefore, the appraisal can make or break the real estate transaction. Unlike a home inspection, where the inspector determines any existing mechanical or system problems in the house, the appraiser’s job is to compare your house against comparable homes that have recently sold to determine its market value. Some items on the appraisers list you can’t change, such as location, but others, such as condition and updating, depending on your budget, may be appropriate tasks to perform to prepare your house for an appraisal.

Paperwork

Although the appraiser has numerous ways of finding information, she may have no way to know about improvements you’ve made to the home, which could have a positive impact on its value. A good way to let her know is to create a list of the home’s features and benefits, advises David Hesidenz of David Hesidenz Appraisals in Pennsylvania. Hesidenz suggests that you supply the appraiser with a page or two containing the exact street address of your home, the number of bedrooms and bathrooms and the square footage and lot size. Then make a list of any improvements you’ve made to the home and the date they were finished. Some of these improvements may include a new roof, new windows, upgraded plumbing or electrical work, and room additions.

Source: PocketSense.com – Bridget Kelly

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The Least Discussed Reason Wannabe Investors Don’t Take Action (& How to Overcome It!)

I’ve never fully understood the obsession with figuring out why other people fail to take action when it comes to real estate investing.

It seems like a lot of people genuinely look for justification not to start.

“If Jimmy didn’t start because he had no money, and I have no money, then I’m justified in not starting yet.”

This is entirely the wrong mentality! Why not focus your energy on figuring out why successful people DID take action?

Regardless, I’m going to tell you the real reason some who are interested in investing never take action. It’s something that isn’t discussed very often.

But first, here are some of the most stereotypical excuses.

Why Some Wannabes Never Take Action: The Typical Responses

Don’t get me wrong. All of these excuses are pretty understandable—yet unfortunate.

Let’s briefly discuss each.

Fear

Fear is a beast. And taking the plunge into real estate isn’t easy.

That being said, everybody experienced the feeling of fear when they bought their first property. It may not have been crippling, but it was there. Anyone who tells you they weren’t at least a little scared is probably not being completely honest with you.

This is why it’s important to make decisions based on numbers and bounce the analysis off experienced investors. Don’t bring your emotions into the deal at all.

Emotions are dangerous—leave them out of investing.

Nervous businessman peeking over desk

Lack of Experience

This excuse drives me nuts!

NOBODY had experience before they took action—you gain experience BY taking action!

If this is your excuse, either quit or work under somebody for free to gain the experience you so crave.

This is a silly excuse to me. Just take action!

No Money

This is an understandable excuse and probably the most common.

I have been investing since 2015. To date, I have never paid more than 6 percent down on a real estate transaction.

Leverage is wonderful. It is risky but wonderful. I house hacked my first duplex for less money than most of my cars have cost.

Theoretically, you could sell your car and buy a house.

You can overcome the “no money” issue by utilizing FHA loans, VA loans (if qualified), seller financing, purchasing subject to the existing mortgage, partnering, other people’s money, hard money lenders, etc.

My point is this: While having no money is scary, if you have knowledge and time, you can invest in real estate!

male showing empty pockets implying moneyless

Not Enough Time

YOU HAVE THE SAME AMOUNT OF TIME AS EVERYONE ELSE!

Set your priorities, and either make REI a priority or find someone with time and provide money/knowledge!

This is a cop-out excuse.

I purchased a property while spending six weeks on a remote island and only having access to the internet through my cell phone a couple of times.

Figure it out.

Why Some Wannabes Never Take Action: The Least Discussed Reason

We have ruled out the most common excuses. And yes, they are just excuses.

Now let’s talk about the least discussed reason some wannabes fail to take action (and how to avoid it).

You’re LAZY!

That’s it.

The number one reason some people fail to take action is the amount of work required.

This excuse is behind the time, fear, and experience excuses. You know it’s going to take a lot of time and energy to make this happen. You’re afraid because it takes a lot of work, and you don’t fully understand what to expect. You don’t have experience because you haven’t done it yet.

In the military, there is a common phrase we use in combat: “Complacency kills.”

Although the meaning is a little different when applied to real estate, the message is the same. It’s not the one morning you sleep in or the one day you get nothing done that hurts you. It’s not the hassle you avoided today or the excuse you used today in order to procrastinate.

However, if you ALWAYS avoid hassle, procrastinate, and sleep in, you will never succeed.

Sloth is one of the seven deadly sins. If you want to succeed as a real estate investor, or in life in general, you need to kill the urge to be complacent—before it kills you!

Related: Getting Started In Any New Real Estate Business

Start Investing NOW: Here’s How

Goals

The first step to conquering the excuse of laziness is to sit down and set goals.

You need to long-, medium-, and short-term goals. These goals should be similar to a five-year plan, yearly goals, monthly goals, and weekly goals.

Think of the cartoons you watched as a kid where a rider would tie a carrot to the end of a long pole and dangle it in front of a stubborn horse/mule in order to motivate them to move forward.

Goals are the carrot you dangle in front of yourself.

No matter how driven you are (or aren’t), there will be days when you lack the motivation to do any work. At these times, it is important to have a carrot (goals) to chase in order to stay on track!

Pensive young entrepreneur looking at laptop screen and drinking coffee at table in cafe

M.I.N.S.

Some of you may have noticed I didn’t say you need daily goals. You may have even been bothered by this and decided to tune out (haha).

The reason I didn’t mention daily goals is that, while they serve a purpose, I prefer to think in terms of the “most important next step.” This is sometimes called M.I.N.S.

M.I.N.S. should be determined every night before you go to sleep. This will ensure you knock out the most important next step toward your weekly goal(s) first thing the next morning.

If you can knock out the most important next step toward your goal every morning, it will snowball into accomplishing your goals quickly!

The key is determining what this step is the night prior, and then doing it first thing the next morning!

Accountability

Most of the actions you take to achieve your goals will not be fun or easy.

It’s easy to find “busy work” to use as a distraction. This busy work is more fun and often easier than accomplishing the most important next step would be.

Since we are all human (I think), it’s safe to assume that you will have days, weeks, months, or even years when you fail to do the difficult task(s) that need to get done.

This is human nature and a hard habit to break. And this is why accountability is crucial to your success as an investor.

You need to find some people who are on the same path as you, as well as a few who are farther down that path, and get together to grow and hold each other accountable!

A common way to do this is through mastermind groups. A mastermind group is comprised of people who have lofty goals for life and are determined to achieve these goals. They meet regularly, whether in person or on conference calls, and talk through their struggles, successes, and so on in order to help each other progress.

These mastermind groups are great for helping you grow and holding you accountable to achieve more!

Mans Hand Reaching For Red Ladder Leading To A Blue Sky

Systems

Real estate investing isn’t easy at first (most things aren’t).

Imagine REI as a large flywheel, and every step you take gets it to move just a little bit faster. As the flywheel speeds up, it takes less and less effort to keep it moving.

This is the power of systems!

Every time you complete a task, remember how you did it. If you complete that task a second time, create a system for streamlining the process. The simpler you can make tasks in real estate, the easier it becomes to buy homes!

For example, one of my favorite systems to date is my Google Drive folder for lenders. Every time I have applied for a loan, I needed to provide the previous two years’ tax returns, W-2s, bank statements, photo IDs, verifiable income, etc.

I created a folder titled “Lender Documents” in Google Drive that has all of this information in it, separated by tax year.

Now, when I apply for a loan, I simply email a link to this folder to my lender and wait for them to tell me if they need any more documentation (which is minimal, if any)!

Talk about streamlining the lending process.

Don’t forget to create systems as you journey down the path of real estate investing. It will make your life so much easier!

Use Laziness to Your Advantage

Lazy people will often find the easiest way to accomplish a task. Use this mentality to succeed as a real estate investor—without losing all of your hair.

Real estate investing isn’t easy, but it is extremely rewarding.

Embrace your laziness, and use the safeguards above to continually attack your goals.

Take the time to put in a lot of work now. You will be happy that you did!

Source: BiggerPockets.com by

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Everything you need to know about your MPAC assessment and property taxes

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When people are trying to figure out whether they can afford a home, they’ll typically focus on the numbers of their down payment and mortgage. While this instinct is understandable — these factors, after all, account for the bulk of home ownership costs — paying down the actual price of your home isn’t all there is to it. Depending on what you own, homeownership costs can also span utilities, condo fees, maintenance fees, and insurance.

No matter what kind of property you have, though, you’ll have to pay property taxes.

What are property taxes, and how do they work? A property tax is a fee that property owners are charged by their local government, based on the value of their property. The tax is usually a percentage of the property’s value, and the exact percentage that a government will charge will vary depending on the municipality you live in. But how does the government determine how much your property is worth?

The answer, if you live in Ontario, is MPAC. The not-for-profit organization works with the province to assess every property in Ontario, and report their dollar value to the municipalities they belong to. Each local government will then use those numbers to set the price of your property tax.

MPAC updates its property assessments across the province once every four years, and the next update is scheduled for 2020. To help you understand how the process works and how it impacts you, we asked Greg Baxter, director of valuation and customer relations at MPAC, to break it down.

What is an MPAC assessment?

Simply put, an assessment is the process that MPAC uses to figure out how much money your property is worth. Your local government will then determine how much you owe in property taxes, based on this value.

“We are responsible for assessing and classifying all properties in Ontario,” Baxter explains. “There are more than five million properties in Ontario — and that represents about $2.78 trillion in property value.”

In Ontario, MPAC will update the value of properties across the province every four years — the last few updates were made in 2012, 2016, and the next one is scheduled for 2020.

The property values that MPAC reports during each update help determine how much property tax you’ll pay over the next four years. For example, if MPAC decided that the value of your home was $500,000 in 2012, the government calculated your property taxes based on a $500,000 value between 2013 and 2016, when MPAC made its next assessment update. The 2016 assessment was then applied between 2017 and 2020.

There are exceptions, though. MPAC continues to review properties between officially-scheduled updates to account for big changes like new structures being built, buildings being demolished, and properties changing uses. When this kind of change happens, MPAC will give you a new assessment for your next tax year.

And what happens if the value of your home changes between one scheduled assessment period and the next? Do you immediately get hit with a higher — or lower — assessment?

To protect homeowners from sudden increases in their property taxes, the Ontario government uses what it calls a “phase-in program.” Let’s say that the value of your home increased dramatically between 2012 and 2016, because you live in an expensive city (ahem, Toronto). Instead of immediately asking you to pay property taxes based on this new value, the value is gradually phased in between 2017 and 2020 until it reaches the full assessed value, so you have time to adjust.

On the other hand, if MPAC discovers that the value of your home decreased, no “phasing” is necessary: the assessed value of your home will immediately drop — along with (probably) the amount of property tax you’re paying.

It’s important to understand that changes in your property’s assessed value will not always lead to changes in how much you pay in property taxes. “If the assessed value of a home has increased by the same percentage as the average in the municipality, there may not be an increase in the property taxes paid by a property owner,” Baxter explains. “Contact your local municipality or taxing authority if you have questions about your property tax.”

How does MPAC determine the value of my property?

Essentially, it all boils down to sales data from Teranet, which runs Ontario’s land registration system.

“We look at sales — property sales transactions that occur between a willing buyer and a willing seller,” says Baxter. “By analyzing the sales and by analyzing the data that we have on those properties, we’re able to arrive at the current value assessment.”

The value that MPAC gives to your property every four years is what MPAC believes your property would have sold for on a given “valuation date.” The most recent valuation dates have been Jan. 1, 2012, Jan. 1, 2016, and Jan. 1, 2019. That means if MPAC assessed the value of your property to be $1 million on Jan. 1, 2012, the next four tax years — 2013 through 2016 — saw your property taxes calculated based on a $1 million home value.

While valuation dates have typically happened in the same year as assessment updates (see 2012 and 2016), recent legislative changes made it necessary for MPAC to set its latest valuation date a full year ahead of the upcoming assessment update in 2020 — the valuation date for the 2021 through 2024 tax period was on Jan. 1, 2019.

But how does the housing market itself come up with prices? “For residential purposes, there’s about five main factors that account for roughly 85% of the value of a property,” Baxter explains. These include:

  • The age of the property
  • The size of the home structure
  • The location of the property
  • The size of the lot
  • The quality of construction

Earlier, we mentioned that MPAC continues to review major property changes — like new structures being built or demolished — in between official assessment updates. When MPAC calculates a new value for your property after a big change, that new value will still be based on the last set valuation period.

If you’re confused, consider this example: let’s say your property was assessed at $500,000 on Jan. 1, 2012, so your property taxes would be calculated based on a $500,000 property value between 2013 and 2016. In 2014, however, right in the middle of that tax period, you demolished your home but still owned the property — which is now an empty lot. MPAC will reassess the value of your home for the 2015 tax year based on this change, by estimating what the current state of your property — an empty lot — would have sold for on Jan. 1, 2012.

How can you prepare for your assessment?

“Really, property owners are not required to do anything to prepare for an assessment,” says Baxter. “We complete a province wide assessment update every four years, based on the legislative valuation date. And then we mail to property owners a property assessment notice.”

Again, the next assessment update is schedule for 2020, and will apply to the tax years between 2021 and 2024.

To review the information that MPAC has on your home, Baxter advises homeowners to visit aboutmyproperty.ca. If any of the information is incorrect, you should contact MPAC to have it updated.

Baxter encourages all property owners to visit the site, which also allows them to compare their property to properties within their area. In general, it also helps homeowners “gain clarity on the information that we have on their file related to their property.”

Will a new MPAC assessment affect my home insurance rate?

Given that your home insurance rate is partly determined by how much it would cost to fix your home in the case of an emergency, the question is worth asking.

Turns out, it doesn’t affect your rate at all.

“The assessed property value for taxation is not material for property insurance,” confirmed Vanessa Barrasa at the Insurance Bureau of Canada.

Source: Lowestrate.ca – By: Jessica Mach on January 15, 2019

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Understanding Real Estate Appraisals

Real estate appraisals are an integral part of the purchase and sale of property, particularly if the buyer is seeking funding from a lender. The appraisal value of a home can make or break a sale, so it only makes sense that so much weight is put upon it.

Whether you are buying or selling, you have minimal control over the appraisal – but that doesn’t mean you need to be in the dark about what it involves and how it is determined.

There are numerous myths about real estate appraisals that people usually discover the hard way. As a buyer or seller, it is essential to have at least a general understanding of how appraisals work.

Below I am going to summarize what you should know about real estate appraisals. Use this as your guide to understand the appraisal process.

1. Is there a difference between an appraisal and a home inspection?

Definitely. The vast majority of real estate transactions involve both an appraisal and an inspection, but they are very different things. An appraisal focuses on determining the market value of the home. The value is based on a lot of various factors, including the cost of similar homes in the area.

A home inspection is supposed to identify problems with the home. While an appraisal may look for obvious flaws, a home inspection goes much, much deeper. With certain kinds of loans, however, they can become intertwined.

For example, with an FHA loan, there are certain condition requirements a home has to meet to be approved for an FHA mortgage. It behooves sellers to understand how to make their home FHA mortgage compliant. Why? A significant percentage of home buyers will use FHA financing to purchase a home.

When a borrower is using FHA financing the appraiser will look the home over to make sure it meets the FHA’s minimum standards for the condition.

2. So what does the appraisal process involve?

Like a home inspector, an appraiser will go throughout the home to inspect its state of repair, its features, its square footage, etc. Mostly, the appraiser looks for all the factors that determine the general market value of a property. People often ask what does an appraiser do. You can find out in this comprehensive resource.

The appraiser will go through every room, taking note of all the details, big and small, that are required to accurately compare the home to other homes to measure its value. When all the details of the house are collected, the appraiser can look over the recent sales of similar homes – searching for properties as identical to yours as possible – and make a comparison to deliver the final appraisal price.

3. Are there different types of appraisals?

The most common kind of appraisal is when an appraiser visits a property and inspects both the inside and outside of the property. An exterior-only inspection is also possible which is known in the industry as a “drive-by appraisal.” A drive-by appraisal is certainly not as comprehensive and is often used when the lender doesn’t have much doubt as to the value of a home supporting the mortgage amount being requested.

The appraisal is an essential part of most real estate transactions!CLICK TO TWEET

4. What will you see in a real estate appraisal?

  • An appraisal report will have specific details about the subject property. There will be a side-by-side comparisons of similar properties that have sold and are for sale.
  • The appraiser will provide an evaluation of how the real estate market is performing in the area.
  • The appraiser may provide concerns in the report about issues he or she feels are harmful to the property’s value.
  • There will be flagged descriptions of any significant problems such as cracks in a foundation or water penetration through the roof.
  • The appraisal will include an estimate of the average sales time for other similar homes.
  • The appraisal will provide whether values are on the rise, decreasing or stable.
  • A description of the area in which the home is located such as a neighborhood, country road or busy street.

5. Are appraisals necessary?

Appraisals are always a good idea for property transactions, and they are required for any home sale that needs a mortgage. Appraisers use their experience and training to give an accurate view of the value of a home.

Since buyers want to spend only what is necessary, and sellers want to generate as much income from a sale as possible, it just makes sense to decide the value of the home before money changes hands.

Lenders also demand appraisals before giving out loans to protect themselves. If for some reason the buyer defaults on the loan, the lender wants to know that they can sell the property and get back their money. Lenders never want to see a low appraisal on a home purchase for which they are lending money.

6. Who is the appraiser and how are they hired?

  • The lender giving the mortgage hires the appraiser through a third party company. Appraisers and lenders are no longer allow to be in direct communication.
  • Appraisers become licensed after completing licensing coursework and internship hours.
  • The appraiser has to be an objective third party who has no financial or other connection to any person involved in the transaction.
  • The property being appraised is called the subject property.

7. Is the appraisal information available to anyone?

No. The appraisal is owned by the party that orders it – which is not necessarily the party who pays for the appraisal. It’s possible, although rare, the owner of the home will pay for the appraisal to move the sale forward, and find themselves frustrated that they can’t get access to the appraisal information.

If the lender orders the appraisal, no matter who pays for it, then the lender is the party in control of who has access to that information. In such a situation it is up to the lender to inform the buyer or the seller what the home appraised for.

More often than not, however, the buyer is paying for the appraisal as part of the process for getting a mortgage. The mortgage holder is required to give the buyer a copy of the appraisal report by law.

8. Is the appraisal the final word on the value of the home?

If you do not like the value determined by the appraiser, you do have recourse. Your real estate can talk with the appraiser and ask questions about why decisions were made that you disagree with. It is possible the appraiser missed something.

Everyone makes mistakes, even experienced professionals. It is also possible that your perspective on the value or your home differs from the appraiser.

While you may think that certain aspects of your home are of a certain value, the appraiser may not see it that way. If you are unhappy with the appraisal, you can request another one. Now and then a low appraisal will be fought. Just be sure you have good cause because the most likely outcome is that the new appraiser will produce a similar opinion as the last one.

In such circumstances be prepared to present a valid argument as to why you believe the appraisal is wrong. If you hired an exceptional real estate agent, they should be ready to help you with this.

9. Why is your neighbor’s house valued higher than yours?

Many times homeowners are frustrated to discover that their homes are not as valuable as similar homes in their area. They may feel that their homes are more beautiful than the neighbors, they may have made additions that they felt should have added more value, etc.

If you find yourself in such a situation, try to be patient and consider the possible reasons why the homes were appraised differently.

Your neighbor may have more square footage than you realize, bigger bathrooms, nicer finishes or any number of things that can make a home more valuable. It’s possible the neighbors made improvements that added value to their home while yours did not.

If you think the appraiser made a mistake, you can always ask him or her why the discrepancy exists.

10. How often do you need to get an appraisal?

In most situations, an appraisal is considered valid for six months. However, in specific markets, where home prices are changing rapidly, some lenders may only use an appraisal for three months or so. And remember, the appraiser will only consider finished improvements to the home. You cannot ask them to determine value based on good faith.

Essentially, the value the appraiser comes up with is valid for the day they completed their report. Real Estate values are continually changing. Sometimes an appraisal will need to be re-certified if it becomes out of date.

Also if you are selling a home and have gotten an appraisal don’t think the buyer’s lender will use it. They will not! The lender holding the mortgage will order their own independent appraisal. Quite often sellers will waste their money on an appraisal thinking it justifies their asking price. Sorry, but it doesn’t work that way.

11. Can I use my city’s property assessment in place of an appraisal?

A property assessment covers a wide area and serves a different purpose than an appraisal. An appraisal is precise, designed to give the most accurate value of a home at the time of the appraisal. An assessment is intended to get a general idea of what property taxes should be.

Property assessors use their figures as a measuring stick for municipalities to collect a certain amount of money to cover expenditures to run a city or town. The assessed value and market value are two very different things. The appraised value is something different from the assessed value as well.

12. Is a Zestimate from Zillow the same as an appraisal?

NO! NO! NO! This cannot be emphasized enough a Zillow estimate is nothing like an appraisal and cannot be used as a substitute. In fact, using a Zillow home value is one of the worst ways to put a value on a property. Whether you are buying or selling a home, a Zillow Zestimate should be ignored. It is a worthless piece of information! There are times when the Zillow value is off by over $100,000 to the actual value.

Don’t be a DUMMY – using a Zillow value is like a bad car crash waiting to happen!

Source: MaxRealEstateExposure.com –  By 

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Home sellers struggling with closing complications after big chill hits market

Realtor Peggy Hill, of Keller Williams, said house closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

Formerly frenzied buyers are reconsidering purchases made in the heat of the market.

Barrie teacher Cheryl O’Keefe doesn’t know how she would have survived the stress-induced sleepless nights of July had school not been out for the summer.

O’Keefe is among Toronto region homebuyers and sellers who got caught in the spring real estate downturn.

When the sale on her house finally closed a month past the originally agreed-upon date, it was the end of an expensive nightmare for O’Keefe.

Others who sold their homes in this year’s once frenzied real estate market, are still struggling to complete their transactions.

Lawyers, realtors and mortgage brokers report a surge in calls from distressed sellers whose buyers purchased in the heat of the market, only to find that the subsequent drop in the home’s value is more than the cost of walking away from a deposit.

Others, who bought unconditionally, have discovered they can’t get the financing to meet their purchase obligation. In some cases, the bank appraisal has come in at a value below what a purchaser agreed to pay, leaving the buyer scrambling to make up the difference.

O’Keefe’s real estate agent, Peggy Hill of Keller Williams, says closings have been stalling since the end of June. Barrie home prices may not be as high as some closer to the city, but the drop has been precipitous.

“Our average price for a home in Barrie is $471,822 for July. In March it was $570,199. We’re talking about a $100,000 difference,” she said.

That is still $40,000 above the average price of July 2016. But back then, 208 of the 260 homes listed sold. “This July we have 201 sales so the sales are still there but with 683 active (listings),” said Hill. “That’s the real picture.”

The GTA-wide picture is similar. When the regional market peaked in April, the average home price — including every category from condos to detached houses — was $919,449. By July, it had fallen to $746,216, although prices were still up 5 per cent year over year.

There were 9,989 sales among 11,346 active listings in July of 2016, according to the Toronto Real Estate Board. This July, listings soared to 18,751 listings, with only 5,921 sales.

O’Keefe had lived in her bungalow for only about two years when she decided to sell it in February, about the time property prices were peaking. Her basement apartment was standing empty and she wanted to downsize.

The real estate frenzy in Barrie mimicked Toronto’s and most of the 43 showings of O’Keefe’s house were, in fact, people from Toronto.

Like many homes at the time, O’Keefe’s sold in about a week for more than the listed price. The buyer put down a $25,000 deposit and requested a longer-than-usual four-month closing date of June 28.

“That was fine. It just gave me more time to do what I had to do,” said O’Keefe.

What she had to do was find a new home for herself in the same fiercely competitive market. She lost a couple of bidding wars and turned her back on a century home she loved because she knew it would go at a price she could never justify.

When she happened on an open house that fit her needs, O’Keefe bought it with a May 28 closing — a month ahead of when her own home sale was to be finalized. She arranged bridge financing to cover both mortgages for that month.

It all looked good on paper. But as the spring wore on, O’Keefe grew uneasy. The buyers of her house had not requested the usual pre-closing visit. Usually, excited new owners want a look around.

O’Keefe got her realtor to call. No response.

A week from closing, she had still heard nothing. At 4:50 p.m. on closing day, her lawyer talked to the purchaser, who admitted he was having difficulty with the closing.

By then, O’Keefe had been living in her new place a month and was paying two mortgages.

She agreed to extend the closing to July 14. When that didn’t happen, O’Keefe agreed to a second extension to July 31. The date came and went. Finally on Aug. 2, her lawyer called to say the buyer closed.

“Every step of the way everything that could be a headache has been a headache,” she said.

O’Keefe’s realtor says that so far, in her office, even problematic closings have been finalized. But some have been disappointing.

“There have been deals where we’ve had to take less commission. The seller had to take less money to make it close because at that point they’re euchred.

“It’s usually $40,000 to $50,000 because of our price point. In other areas I know it’s in hundreds of thousands of dollars,” said Hill, referring to areas such as Richmond Hill, Newmarket and Aurora, also hard hit by the market’s downward slope.

Some buyers have requested extensions on new home purchases because their old places didn’t sell, said Hill.

“That’s understandable,” she said. “In March, you wouldn’t dare go in with an offer conditional on the sale of a home. The problem is, in April, when all hell broke loose, everybody started putting their houses on the market fearing they had missed the top.”

Many have arranged bridge financing and moved on. But others haven’t been as fortunate, said Toronto lawyer Neal Roth.

He has been getting about five calls a week since mid-May from home sellers struggling to close on transactions.

“There is this horrendous domino effect going on where people in the spring were rushing into the market for a variety of reasons, committing to prices that in some instances were well beyond their means,” he said.

Most of his callers represent one of two scenarios.

First, there’s someone paid $1.5 million for a house that has since become worth $1.4 million, so they want to get out of the purchase.

“The other type of person says, ‘The bank promised me 60 per cent financing. Now that I’m at $1.5 million I should still get the same 60 per cent, not realizing that you have to come up with the 40 per cent of your own cash, or that the bank said 60 per cent when you were at $1.2 million, not $1.5 million,” said Roth.

While he thinks some sellers got greedy and some buyers should have been more careful, he hasn’t encountered anyone who got caught playing the property market.

“They’re all average people. None of them have been speculators as far as I know,” he said.

It’s not uncommon for mortgage brokers to hear from home buyers struggling with financing, said Nick L’Ecuyer of the Mortgage Wellness Group in Barrie

“But what we’re getting now is people who are in sheer turmoil. They don’t know what to do at all,” he said.

Some sellers, who planned to use their equity to put down 20 per cent or more on another home, don’t realize they can’t get bridge financing from a bank if they don’t have a firm purchase agreement on their old house.

Then there’s the hard truth that the house they’re selling isn’t likely to go for as much as they expected earlier in the year.

They can put down just 5 per cent and apply for a government-insured mortgage, but that’s more complicated and costly, said L’Ecuyer.

The Appraisal Institute of Canada doesn’t have statistics on the number of lender-commissioned appraisals that come in short of the agreed-upon price of a home.

But based on anecdotal accounts, it’s happening more now in the GTA, said institute CEO Keith Lancastle.

“Any time you go into a situation where you make an abrupt change from a seller’s market to a buyer’s market — where you see a slowdown for whatever reason — you can encounter this situation,” he said.

The role of an appraiser is to provide an unbiased opinion of a property’s value at a given point of time.

“A heated market does not automatically translate into a true market value. When you take away the heat, all of a sudden it settles down into something that is perhaps more reflective of what true market value is,” said Lancastle.

He says he’s still surprised by how emotional what is routinely now a million-dollar home buying experience can be.

“It’s arguable that mortgage lending should not be underwriting that emotion and that notion of a sober second thought is really important, not only for the purchaser, but also for the lender,” he said.

Buyers tempted to walk away from a deposit need to realize that they may still face a lawsuit, says L’Ecuyer. If you bought a house for $500,000 and decided to forfeit the deposit, and the seller gets only $450,000 from another buyer, you can be sued for the difference, he said. There is also the possibility of being sued by a realtor who isn’t getting a commission, and for additional legal and carrying costs.

Roth said there are people who don’t even realize that when they back out of a sale, their deposit is automatically lost.

O’Keefe believes that because she priced her home on the low side, it hasn’t lost any value. “You start talking to people and this is happening to so many,” she said. “I’m lucky that my house closed.”

Source: Toronto Star – 

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