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Monthly Archives: September 2018

About Home Appraisals

A home appraisal is an opinion on value by a qualified, unbiased third party. Mortgage lenders require an appraisal to be completed when you are refinancing your mortgage. An appraisal is also completed in a transaction when someone is buying a home to make sure they have not over paid for it.

Mortgage Lenders require appraisal to ensure that homeowners are not over paying for a property because if the borrower stops paying for the mortgage the lender will take action to remove the borrower from the home and sell it to recoup their money, this is why it is important for the home to be worth more than the money loaned. In essence, a home appraisal is a lawyer of protection for the mortgage lender.

The Appraisal Process and How Appraisal Values Are Determined

These are the main factors that influence your home’s appraisal value: current market trends which are reflected in the comparable properties the appraiser selects, the house’s features,, square footage, number rooms/bedrooms & bathrooms, condition, is the property considered up to date, landscaping and exterior condition and parking (garage). The appraiser will do an interior and exterior inspection for the above noted factors and will also make note of any deferred maintenance which will be included in the report for the lender.

The appraiser will complete his report on a standard report form that is required by their appraisal jurisdiction. The information that has to be included in an appraisal report will not vary much from Canada to the United States.

A standard report includes the following: comparable sales, a street map, building sketch, square footage, photos of the front, back and street scene of the home, photographs of each comparable property used; a map showing the location of the comparables in relation to the subject property, plot map, description of intended users of the appraisal report, photo and description of each room in the house.

The cost of a residential appraisal report ranges from $250-$500 and the homeowner is typically responsible for paying the appraiser..

What Homebuyers Need to Know

When you’re buying a home an appraisal could potentially sink your deal. If you make an offer to purchase a house, towards the end of the home buying process your mortgage lender will require that the home being purchased be appraised. If the home appraises for less than your offer to purchase the lender will not provide the loan, however, this could be good for a buyer as well because you may be able to negotiate to lower purchase price but very often at the point of the home appraisal in the buying process an agreement of purchase and sale is already in place.. If a bad appraisal is standing between you and your home purchase, look into getting a second opinion via a second appraisal. Appraisers are not perfect and it is possible for them to make mistakes.

What Home Sellers Need to Know

As a seller, a low appraisal means that you may have to lower your home’s price to get it sold. Lenders won’t approve loans for more than a home is worth, and holding out for an all-cash buyer who doesn’t require an appraisal as a condition of completing the transaction is unlikely to net you a higher sales price. No one wants to overpay for a home but more importantly a mortgage lender will not over lend on the value of a property, therefor if the appraisal comes in lower than what your buyer is offering this will likely sink your deal unless you lower the price.

What Refinancing Homeowners Need to Know

If you’re refinancing your mortgage and looking to access some of the equity in the home the appraised value is very important. Mortgage lenders will have maximum loan to value ratio that they will go up to so the larger the difference between what you owe on your current mortgage and what the home is appraised at obviously the better. Having a better loan to value ratio will also make obtaining the lowest possible mortgage rates possible. Lenders put a lot of emphasis on this ratio so a high appraisal value is very important.

Info of Real Estate Fraud

Such a crime can be committed in many different ways. It appears to happen more often when property prices are on the rise. Because of the simplicity of the fraud, some types are seen more than other frauds. Some are not as common because they are more complicated. One of the common forms of such fraud, according to the IRS is preparing two settlement statement sets that are different from each other. In one of the statements, the accurate property-selling price is written, which the buyer receives. The other one will depict a higher selling price that is exaggerated. When the mortgage lender approves the loan for the exaggerated price, the seller is given the amount that is stated in their copy of the settlement statement. The one who committed the fraudulent settlement statements will keep the money that is left over. If there are other conspirators, the money will be divided among them. It could be the entire excess money or a percentage of it.

Using qualification that are fraudulent is another type of real estate fraud. These fraudulent qualifications are used when applying for a mortgage or home loan to help them get the mortgage. In this form of real estate fraud, the real estate agent will usually assist the buyer. The fraudulent qualifications can include fabricating credit reports or history of employment. These two involve the obvious misrepresentation of data but not all real estate fraud is easy to see as these two examples. If buyers who do not intend to commit real estate fraud because they do not know the laws can accidentally commit mortgage fraud.

If a buyer has a down payment by using money that was given as a gift it is legal. If this gift is re-paid to the who gave the gift, this is considered a case of real estate fraud. The gift used to make a down payment cannot be repaid for it to be legal. Another type of property fraud is when the buyer accidentally fails to disclose any financial liabilities on their mortgage application. It becomes fraud when it is not taken care of before the loan is approved. Property flipping can become real estate fraud if you make false representations about the value and condition of the property when you sell it for a much higher price than you paid for the property.

Deal With a Low Home Appraisal

Here are a few reasons why a home appraisals may come in low:

  • Inflated home price because of multiple offers.
  • Declining real estate market due to a large inventory of homes and not enough buyers.
  • The seller has overpriced the home.
  • The real estate appraiser lacks experience and doesn’t understand the influences on value.
  • The real estate appraiser incorrectly selected his comparable sales for his report which may have resulted in a lower home value than what should have been assessed.

Solutions for Low Appraisals

If a low home appraisal is threatening to sink your sale, purchase or refinance, stay calm, here are a couple solutions:

    • The buyer can pay you the difference between the purchase price you agreed upon and the appraised price in cash, you can sell the property for the appraised value and get the difference from the agreed upon higher price in a lump sum cash payment if the buyer is able to do so.
    • If you are the seller of the home you do have the option of lowering the selling price. If you don’t you will run the risk of every buyer running into the same problem and not being able to get a mortgage because of a low appraisal.
    • The seller can offer to carry a second mortgage for the difference.
    • If the buyer feels they absolutely have to have your home and you are not willing to lower the selling price and the buyer cannot come up with a lump sum to pay you (as mentioned in option 1) you could accept having them make payments to you over a period of time instead of the lump sum.
    • Get a second opinion, have the buyer ask the mortgage lender for a list of their approved appraisers and select another company on this list and hope for a higher value, you could end up wasting another $300 on an appraisal but appraisers are not perfect and a mistake could have happened.
  • Cancel the transaction.

Have your realtor put in your purchase and sale agreement a loan contingency that if the home appraises for a lower value that you will get your money back (if you’re the buyer). If you are a seller being affected by a low appraisal propose on of the above options to your buyer if you would like to try and salvage the transaction.

 

Shadow Inventory

Banks hold on since it allows them to release their inventory over time to keep their books in check and also to provide that easy liquidation to stimulate the real estate economy when necessary. Banks will now be getting more money for those newly released properties, then say 2 years ago, due to the steady increase in home prices and low inventory levels. If they chose to release all at once, it would flood the market with “distressed properties” and bring down property values.

How much “Shadow Inventory” is still out there?

Foreclosures have been steadily declining since 2013 with the highest shadow inventory then at 2.2MM. According to the National Association of Realtors, there is still about 4 years still on the books and it is possible that we could soon see more!

More “Shadow Inventory”? Why? (HAMP) Home Affordable Modification Program

In 2017 and beyond, many homeowners may find it difficult to make their mortgage payments due to “resets” with HAMP thus pushing them into foreclosure. The government’s Home Affordable Modification Program provided temporary relief to borrowers during the housing crisis. These reliefs ended after five years and now payments will be “reset” thus causing loan payment increases for nearly 900,000 homeowners. Some of those are likely to find it difficult to keep up with the payments in our current economy.

Where do Investors find “Shadow Inventory”?

Forget about calling the loss mitigation department or asking the cashier at your Big Bank. They won’t be able to help you. Instead, savvy real estate investors can approach the REO departments of smaller regional banks, credit unions and portfolio lenders to find out what could be “lurking” in the shadows. This presents an opportunity to beat out the competition and purchase at greater discounts.

But my favorite way to locate “Shadow Inventory” is what I call “Driving forDollars”. Simply drive through areas that have high foreclosure activity and look for the white sticker posted on the front window or door of the house. This typically contains the information of the bank or asset manager of the property and their phone number. Give them a call and see where they are in the foreclosure process and if they’re ready to make a deal!

The NEW kind of “Shadow Inventory”!

There is a new kind of shadow inventory on the market these days and I’m not talking about the REO kind. Many successful agents have their own shadow inventory. If you’ve been in the business for an extended period and built up a clientele, these clients typically contact you well in advance of the property going on the market. You advise them of the steps needed to get the house ready to show which typically means doing repairs such as paint, carpet, landscaping, staging, etc. Therefore, there is a period of time before the property actually hits the market creating a different type of shadow inventory. Contacting your favorite realtor about this type of inventory can definitely increase your chances of finding that Dream home.