HOME APPRAISALS & MARKET VALUE
What is the return on new versus previously owned homes?
Buying into a new-home community may seem riskier than purchasing a house in an established neighborhood, but any increase in home value depends upon the same factors: quality of the neighborhood, growth in the local housing market and the state of the overall economy.
One survey by the National Association of Realtors shows that resale homes do have an edge over new homes. The trade group's figures show the median price of resale homes increased 7 percent between 1998 and 1999, compared to 2.8 percent for new homes in the same period.
What is the difference between list price, sales price and appraised value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
What's a house worth?
A home ultimately is worth what someone will pay for it. Everything else is an estimate of value. To determine a property's value, most people turn to either an appraisal or a comparative market analysis.
An appraisal is a certified appraiser's estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account. Most appraisals cost about $300.
You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder or assessor offices, through private real estate information companies or on the Internet.
What standards do appraisers use to estimate value?
Appraisers use several factors when estimating a home's value, including the home's size and square footage, the condition of the home and neighborhood, comparable local sales, any pertinent historical information, sales performance and indices that forecast future value. For detailed information on appraisal standards, contact the Appraisal Institute at 875 N. Michigan Ave., Suite 2400 , Chicago , IL 60611-1980 ; (312) 335-4458.
Can I find out the value of my home through the Internet?
You can get some idea of your home's value by searching the Internet - Home Appraisals. A number of Web sites and services crunch the numbers from historic public records of home sales to produce the statistics. Some services offer an actual estimate of value based on acceptable software appraisal standards. They also depend on historic home sales records to calculate the estimate.
ESCROW CLOSING COSTS
How can I save on closing costs?
Studies show that the closing costs, which can average 2 to 3 percent of a total home purchase price, are often more costly than many buyers expect. But there are some ways to save:
1 - Negotiate with the seller to pay all or part of the closing costs. The lender must agree to this as well as the seller.
2 - Get a no-point loan. The trade-off is a higher interest rate on the loan and many of these loans have prepayment penalties. But buyers who are short on cash and can qualify for a higher interest rate may find a no-point loan will significantly cut their closing costs.
3 - Get a no-fee loan. Usually, though, these fees are wrapped into a higher interest rate though it will save you on the amount of cash you need upfront. * Get seller financing. This kind of arrangement usually does not entail traditional loan fees or charges.
4 - Rent the property in which you are interested with an option to buy. That will give you more time to save for the upfront cash needed for the actual purchase.
5 - Shop around for the best loan deal. Each direct lender and each mortgage brokerage has their own fee structure. Call around before submitting your final loan application.
What are closing costs?
Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.
Where do I get information about closing costs?
For more on closing costs, ask for the "Consumers Guide to Mortgage Settlement Costs," Federal Reserve Bank of San Francisco, Public Information Department, P.O. Box 7702, San Francisco, CA 94120 or call (415) 974-2163.
Who pays the closing costs?
The home seller or homebuyer either pays closing costs. It often depends on local custom and what the buyer or seller negotiates.
Why do I need a title report?
As much as you as a buyer may want to believe that the home you have found is perfect, a clear title report ensures there are no liens placed against the prior owners or any documents that will restrict your use of the property.
A preliminary title report provides you with an opportunity to review any impediment that would prevent clear title from passing to you.
When reading a preliminary report, it is important to check the extent of your ownership rights or interest. The most common form of interest is "fee simple" or "fee," which is the highest type of interest an owner can have in land.
Liens, restrictions and interests of others excluded from title coverage will be listed numerically as exceptions in the report.
You also may have to consider interests of any third parties, such as easements granted by prior owners that limit use of the property. Some buyers attempt to clear these unwanted items prior to purchase.
A list of standard exceptions and exclusions not covered by the title insurance policy may be attached. This section includes items the buyer may want to investigate further, such as any laws governing building and zoning.
What contingencies should be put in an offer?
Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the sellers responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
FINDING THE RIGHT HOME
Do we dig deep and buy a dream home or settle for a starter home?
Choosing between a smaller home in an affluent neighborhood, an older, bigger house in a more working-class community or a brand-new home is not easy. If you're in this situation, start by examining your priorities and asking the following questions:
Is the surrounding neighborhood or the home itself the most important consideration?
- Is each of the neighborhoods safe?
- Is quality of the schools an issue?
- Do any of the areas seem to attract more families with children or adult residents?
As for the return on your investment, home-price appreciation is hard to predict. In the late 1980s, the more expensive move-up housing appreciated wildly. But during the recession that followed, smaller homes tended to hold their value better than more expensive ones.
How do I get the real scoop on homes I am looking at?
Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement. Here is a summary of the things you could expect to see in a disclosure form:
- In the kitchen -- a range, oven, microwave, dishwasher, garbage disposal.
- Safety features such as burglar and fire alarms, smoke detectors, sprinklers, security gate, window screens and intercom.
- The presence of a TV antenna or satellite dish, carport or garage, automatic garage door opener, rain gutters, sump pump.
- Amenities such as a pool or spa, patio or deck, built-in barbeque and fireplaces.
- Type of heating, condition of electrical wiring, gas supply and presence of any external power source, such as solar panels.
- The type of water heater, water supply, sewer system or septic tank also should be disclosed.
Sellers also are required to indicate any significant defects or malfunctions existing in the home's major systems. A checklist specifies interior and exterior walls, ceilings, roof, insulation, windows, fences, driveway, sidewalks, floors, doors, foundation, as well as the electrical and plumbing systems.
The form also asks sellers to note the presence of environmental hazards, walls or fences shared with adjoining landowners, any encroachments or easements, room additions or repairs made without the necessary permits or not in compliance with building codes, zoning violations, citations against the property and lawsuits against the seller affecting the property.
Also look for, or ask about, settling, sliding or soil problems, flooding or drainage problems and any major damage resulting from earthquakes, floods or landslides.
People buying a condominium must be told about covenants, codes and restrictions or other deed restrictions.
It's important to note that the simple idea of disclosing defects has broadened significantly in recent years. Many jurisdictions have their own mandated disclosure forms, as do many brokers and agents. Also, the home inspection and home warranty industries have grown significantly to accommodate increased demand from cautious buyers. Be sure to ask questions about anything that remains unclear or does not seem to be properly addressed by the forms provided to you.
HOME INSPECTIONS
How do I find a home inspector?
Search for an inspector with demonstrable qualifications. Ideally, the general inspector you select should be an engineer, an architect, or a contractor. When possible, hire an inspector who belongs to one of the home inspection trade organizations.
The American Society of Home Inspectors (ASHI) has developed formal inspection guidelines and a professional code of ethics for its members. Membership to ASHI is not automatic; proven field experience and technical knowledge of structures and their various systems and appliances are a prerequisite.
The best source for a good home inspector is word of mouth from satisfied customers. Ask a friend or neighbor that were happy with a previous inspectors work and report system. Many inspectors charge about $400, but costs go up with the scope of the inspection. Remember that a home inspector's obligation is to inspect and report to the paying client – no one else.
What's a home inspection?
A home inspection is when a paid professional inspector -- often a contractor or an engineer -- inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.
Do I need a home inspection?
Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.
INSURANCE
What kind of home insurance should I get?
A standard homeowners policy protects against fire, lightning, wind, storms, hail, explosions, riots, aircraft wrecks, vehicle crashes, smoke, vandalism, theft, breaking glass, falling objects, weight of snow or sleet, collapsing buildings, freezing of plumbing fixtures, electrical damage and water damage from plumbing, heating or air conditioning systems, according to the Insurance Information Institute, a Washington, D.C.-based nonprofit group for the insurance industry.
Such policies are "all-risk" policies, which cover everything except earthquakes, floods, war and nuclear accidents.
A basic policy can be expanded to include additional coverage, such as for floods and earthquakes and even workers' compensation for servants or contractors. Home-based business-coverage, an increasingly popular rider, does not cover liability associated with the business.
Insurance experts recommend that homeowners obtain insurance equal to the full replacement value of the home. On a 2,000-square-foot home for example, if the replacement cost is $80 per square foot, the house should be insured for at least $160,000.
For personal items, homeowners can increase their coverage beyond the depreciated value of items such as televisions or furniture by purchasing a "replacement-cost endorsement" on personal property.
Some experts recommend an inflation rider, which increases coverage as the home increases in value.
What is guaranteed replacement cost insurance?
Guaranteed replacement insurance is a more comprehensive policy. It tends to cost more, but it promises to cover the complete costs -- less deductible -- of replacing a destroyed house. With these sorts of policies, limits on the policies are not as common, because complete coverage is more explicit.
Prepare Your Home to Survive a Disaster
Natural catastrophes can strike quickly and without warning. When they do, anything that can move, fall, break or cause a fire is a hazard. The following checklists will help you identify the worst hazards and bolster your home's resistance to damage from hurricanes, fires, tornadoes, earthquakes and floods.
Home Inspection Checklist
The Family Emergency Preparedness Protection Program suggests that you inspect your home at least once a year for potential hazards.
- Identify your home's utility shut-off valves and learn how to use them.
- Have at least one flashlight and a battery-powered radio.
- Make an evacuation plan so all family members know several escape routes and where to meet. Conduct drills to practice the plan.
- Have one or more fire extinguishers and learn how to use them. Have the extinguisher serviced according to the manufacturer's instructions.
Disaster Supply Kit Checklist
Expect to go three days after a natural disaster without power or basic services such as electricity, water, fire fighters, and police. To be prepared, assemble a Disaster Supplies Kit for your household and a smaller version for the car.
- For each person, include one change of clothing and footwear, a blanket or sleeping bag, and a three-day supply of water (one gallon per person per day).
- A first aid kit, including all of your family's prescription medicines and extra glasses.
- Sanitation supplies.
- Emergency tools, including a radio, flashlight and extra batteries.
- An extra set of car keys, a credit card and cash or traveler's checks.
- Any special items for infant, elderly or disabled family members.
- A waterproof pouch containing important family documents.
Emergency Food & Water Checklist
Food and water are essential to survival. In case of emergency, it's important to keep a few things in mind about what to eat and drink.
- Use food in the refrigerator first, then the freezer. Frozen food will keep up to three days in an unopened freezer.
- Keep a few extra canned goods in the back of the cupboard.
- The water heater (30-40 gallons) should contain enough water to last a four-person household four days. (Turn off power before draining and be careful of sediments that can accumulate at the bottom of the tank.)
- Ice cubes in the freezer and liquid from canned food can be used.
- If you'd rather not store extra water, consider keeping purification tablets on hand. Household chlorine bleach will disinfect water, too. Use one-eighth of a teaspoon per gallon of water and let stand for 30 minutes before drinking. Do not use bleach with added soaps or fragrances.
Evacuation Checklist
In certain cases of natural disaster, emergency personnel will order an area to evacuate its homes. If directed to do so by, comply immediately, keeping in mind the following checklist:
- Keep emergency and other critical numbers posted clearly near a phone.
- Listen to your battery powered radio for weather and emergency updates.
- Follow the instructions of local emergency officials on evacuation procedures.
- Wear protective clothing and sturdy shoes.
- Take your Disaster Supplies Kit with you, including important family documents.
- Lock your home.
- If instructed to do so, shut off water, gas, oil and electricity before leaving.
- Post a note telling others when you left and where you are going.
To learn more about emergency preparedness and resources available in your community, contact your local emergency services department, the American Red Cross, or your independent insurance agent.
Are You Prepared for an Earthquake?
Use this list to help protect your home.
In a major earthquake, the risk of damage from shaking, falling debris and aftershocks can be great. Use this checklist to help you protect your home and belongings:
- House frame securely bolted to the foundation and chimneys, roofs and walls checked for stability.
- Cabinets, bookcases and mirrors secured to wall studs, and gas hot water heater strapped to the wall.
- Strong latches on all cabinet doors.
- Hazardous or flammable materials stored safely.
- Survival kit with food, water to last at least three days.
- Family informed on "what to do in an earthquake."
Steps to Follow After an Earthquake:
- After tremors stop, vacate premises immediately.
- When it is safe to do so, eliminate fire hazards that can cause further damage.
- Check the building for cracks and structural damage, including the roof, chimney and foundation. Record the damage (pictures, video, etc.)
- Move valuables to a safe, weatherproof location.
- Review your insurance coverage and promptly report claims to your agent.
- Collect records of appraisals and inventory to help document loss. Use licensed professionals to conduct inspections and repair your home.
Four Steps To Fire Safety
Most home fires start between midnight and 6am when you're least prepared to deal with danger. But by preparing ahead of time, you'll greatly reduce the likelihood of being among the 6,000 fire casualties in the U.S. annually.
1. Be Proactive Inside
- Install smoke detectors in bedrooms, hallways, and your kitchen.
- Check regularly for electrical hazards, such as overloaded plugs, and worn or broken electrical cords.
- Store matches and lighters safely away from where children can reach them.
- Keep halogen lamps away from curtains, posters, and bedding-- the bulbs can be up to 1,200 degrees Fahrenheit.
2. Check Around Outside
- Store flammable liquids outside, or in metal cabinets.
- Avoid storing items where fires could start undetected, like furnace rooms, balconies, and porches.
- Clean and repair chimneys, flue pipes, vent connections, and gas vents.
- Store a collapsible, non-flammable ladder on upper floors for emergency escapes.
3. Have An Emergency Plan
- Establish escape routes from each room and designate a meeting spot outside.
- Conduct fire drills using your escape routes, and staying low to the ground.
- Practice feeling doors for temperature being opening them, and closing doors as you leave to restrict the spread of fire, smoke, and heat.
4. Get A Multi-Purpose Fire Extinguisher
Extinguisher labels carry symbols explaining the fire types they combat. Be careful the wrong extinguisher could actually spread a fire! Look for multi-purpose extinguishers rated "ABC" for:
- Class A: wood, paper, fabric, rubber and plastics
- Class B: petroleum-based products or flammable liquids, such as grease, oil, gasoline, tar, paints and cleaning solvents.
- Class C: electrical equipment, outlets, etc.
Personal Umbrella Liability Insurance
We all understand the general need for insurance, which protects you and your property from damage, theft and even natural disaster. But what happens when an accident occurs that exceeds the coverage these policies provide? Or what if you're sued for something that falls outside of the scope of your insurance?
Many situations are likely to result in settlements that exceed whatever coverage you may have. If you want to fully protect the assets belonging to you and your family, extra coverage is not just a luxury; it's a necessity.
An "Umbrella" of Liability Protection
personal umbrella policy coverage "kicks in" where your existing coverage ends. It can provide additional liability protection at $1 million to $5 million above the limits noted in basic auto and homeowners policies.
Personal umbrella protection can cover:
- Operating most motor vehicles, including cars, RVs, motorcycles, pickup trucks, and most watercraft
- Incidents involving any property covered by your basic homeowners policy
- Incidents alleging slander, libel, defamation of character, invasion of privacy, even false arrest
- Business liability coverage, if covered by your basic homeowners policy
A Relative Bargain
For the amount of protection you get, umbrella liability coverage is not very expensive. Premiums can be as low $100 to $300 a year for $1 million worth of coverage. Many situations are likely to result in settlements that exceed whatever coverage you may have. If you want to fully protect the assets belonging to you and your family, extra coverage is not just a luxury; it's a necessity.
MAKING THE OFFER
What is the difference between list price, sales price and appraised value?
The list price is a seller's advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.
The sales price is the amount of money you as a buyer would pay for a property.
The appraisal value is a certified appraiser's estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.
What are some tips on negotiation?
The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, seller who must move quickly due to a job transfer may be amenable to a lower price with a speedy escrow. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home.
Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up.
Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.
Do I need an attorney when I buy a house?
In some states, you do need an attorney to complete a real estate transaction, but in others you do not.
Most homebuyers are capable of handling routine real estate purchase contracts as long as they make certain they read the fine print and understand all the terms of the contract. In particular, you should be clear on the terms of any contingency clauses that will allow them to back out of the contract.
If you have any questions at all, it may be advisable to consult an attorney to avoid future legal hassles. In looking for an attorney, ask friends for recommendations or ask your real estate agent to recommend several. Call to inquire about fees and to check on their experience. In general, more experienced attorneys will cost more, but real estate fees, as a rule is small relative to the cost of the property you are buying?
What are the standard contingencies?
Most purchase offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
As a buyer, you could forfeit your deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the sellers responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.
What is the difference between list and sales prices?
The list price is how much a house is advertised for and is usually only an estimate of what a seller would like to get for the property. The sales price is the amount a property actually sells for. It may be the same as the listing price, or higher or lower, depending on how accurately the property was originally priced and on market conditions.
If you are a seller, you may need to adjust the listing price if there have been no offers within the first few months of the property's listing period.
Whose obligation is it to disclose pertinent information about a property?
In most states, it is the seller, but obligations to disclose information about a property vary.
Under the strictest laws, you and your agent, if you have one, are required to disclose all facts materially affecting the value or desirability of the property, which are known or accessible only to you.
This might include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property; and any restrictions on the use of the property, such as zoning ordinances or association rules.
It is wise to check your state's disclosure rules prior to a home purchase.
What contingencies should be put in an offer?
Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers' ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.
A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.
The purchase contract must include the sellers responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property. |
