Buyer's Info

Appraisals & Market Value

Are there standard ways to determine how much a home is worth?

Yes. A comparative market analysis and an appraisal are the two most common and reliable ways to determine a home's value.


Your real estate agent can provide a comparative market analysis, an informal estimate of value based on the recent selling price of similar neighborhood properties. Reviewing comparable homes that have sold within the past year along with the listing, or asking, price on current homes for sale should prevent you from overpaying.


A certified appraiser can provide an appraisal of a home. After visiting the home to check such things as the number of rooms, improvements, size and square footage, construction quality, and the condition of the neighborhood, the appraiser then reviews recent comparable sales to determine the estimated value of the home.


Lenders normally require an appraisal – which runs between $200 to $300 – before they will approve a mortgage loan. This protects the lender by ensuring the home is worth the money you want to borrow.


You also can check recent sales in public records, through private firms, and on the Internet to help you determine a home’s potential worth.

 

How do you determine how much a home is worth?

The short answer: a home is ultimately worth what is paid for it. Everything else is really an estimate of value. Take, for example, a hot seller’s market when demand for housing is high but the inventory of available homes for sale is low. During this time, homes can sell above and beyond the asking price as buyers bid up the price. The fair market value, or worth, is established when “a meeting of the minds” between the buyer and the seller takes place.

What about appraised value and market value?

A certified appraiser who is trained to provide the estimated value of a home determines its appraised value. The appraised value is based on comparable sales, the condition of the property, and several other factors. Market value is the price the house will bring at a given point in time, once the buyer and seller establish a “meeting of the minds” on price.

 

What is the difference between list price and sales price?

The list price is a seller's advertised price, or asking price, for a home. It is a rough estimate of what the seller wants to complete a home sale. A seller can price high, low – (which seldom happens), or very close to the amount they want to get. A good way to determine if the list price is a fair one is to look at the sales prices of similar homes that have recently sold in the area.

The sales price is the actual amount a home sells for.

Lease Options

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What is a lease option?

It is an agreement between a renter and a landlord in which the renter signs a lease with an option to purchase the property. The option only binds the seller; the tenant has a choice to make a purchase or not.

Lease options are common among buyers who would like to own a home but do not have enough money for the down payment and closing costs. A lease option may also be attractive to tenants who are working to improve bad credit before approaching a lender for a home loan.

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How does a lease option work?

A landlord agrees to give a renter an exclusive option to purchase the property. The option price is usually determined at the outset, but not always, and the agreement states when the purchase should take place – whether, say, six months, or a year or two down the road. A portion of the rent is used to make the future down payment. Most lenders will accept the down payment if the rental payments exceed the market rent and a valid lease-purchase agreement is in effect.

Before you opt to do a lease option, find out as much as possible about how they work. Talk to real estate agents, read published materials, and, in the end, have an attorney review any paperwork before you sign on the dotted line.

Closing Costs

Is it possible to save on closing costs?
Certainly, once you get past the sticker shock. Closing costs are expensive. They can average between 5 to 6 percent of the total home purchase price. But here are a few ways to save:

  • Haggle with the seller. He may pay all or part of the closing costs.
  • Nab a no-point loan. You may have to pay a higher interest rate, but if you are strapped for cash and can qualify for a higher interest rate, you may find this type of loan can significantly reduce your closing costs.
  • Grab a no-fee loan. Although the fee is usually wrapped into a higher rate loan, it does offer one advantage – you get to save on the amount of cash you would need up-front.
  • Secure seller financing. These loans typically avoid the traditional fees or charges imposed by lenders.
  • Shop ‘til you drop for the best deal. Every lender has its own unique fee structure; you are bound to find one that works for you.
 
Is there anything I should know about closing day?
Yes. The following to-do list can help save you a few headaches and keep the closing on track:

  • Keep extra money in your account. Something unexpected can pop up during the closing that will require more money out of your pocket. Take your checkbook. Even better, find out how much you will need to pay and write a certified check for the total amount.
  • Take your loan commitment letter. Use it to verify loan approval in case of a mistake or misunderstanding with the lender.
  • Take your contract to purchase. Pull it out if something a little suspicious comes up.
  • Take your personal ID. A driver’s license or other personal identification will do.
  • Do a before-closing inspection. It is always a good idea, when possible, to walk through the property to make a list of any problems.
  • Utilities. Arrange in advance to have the water and electric meters read on closing day and the service switched to your name to prevent interrupted service. The same applies for the fuel tank.
What are closing costs?
Closing, or settlement, costs are expenses over and above the price of the property. Both the buyer and seller incur some of these expenses when transferring ownership of a property. Who actually pays, however, often depends on local custom and what the buyer or seller negotiates. Closing costs normally include title insurance, loan points, escrow or closing day charges, property taxes, and document fees. The lender provides an estimate of closing costs for prospective homebuyers.

Getting Started

How do you decide whether to add on to an existing home or purchase a new one?

There are a few things to consider, including cost, individual needs, and what will add value down the road. Also important: your emotional attachment to the existing home. As designer and builder Philip S. Wenz, the author of Adding to a House: Planning, Design & Construction, notes, an addition is much cheaper than building a new home and can offer a “new” home without the heartache of moving.

Other considerations:

How much can I afford?
The general rule is that you can buy a home that costs about two-and-one-half times your annual salary. A good real estate agent or lender can determine how much you can afford and estimate the maximum monthly payment based on the loan amount, taxes, insurance and other expenses. Your real estate agent can help you to figure out now how your income, debts, and expenses can affect what you can afford, and how much you may be able to borrow to purchase a home, and even prepare an estimated settlement sheet for homes you like.
Is it best to save for the ultimate dream home or begin with a less expensive starter home?
It can take a long time to save for that perfect dream home. Meanwhile, the market has been flooded with some of the most favorable mortgage interest rates in years. Low rates make housing more affordable, which is why so many buyers have jumped on the home buying bandwagon. Home-price appreciation has also been strong, making very solid gains in communities across the country. In fact, home prices are expected to increase 2.5 percent to 3 percent annually over the next five years.

If you purchase a starter home today, you can potentially begin to build value that can lead to the purchase of a larger, or more desirable, trade-up home in the future.

What are the advantages of owning a home?
There are many. Among the most appealing: you own it, which gives you, instead of a landlord, control of your living space. Other benefits stem from potential tax savings and the buildup of equity as your property likely appreciates in price over time. Equity can be used to help put children through college, purchase a second home, or make home improvements.

The mortgage interest paid on a home loan is tax deductible, as is the local property tax. If you get a fixed-rate home mortgage loan, you also can invest more wisely knowing your monthly mortgage payment, unlike rent, will not change substantially.

What is the first step to buying a home?
Make sure you are ready – psychologically and financially. Ask yourself the following questions: Do I have steady income? Is my debt lower than my total income? Do I have enough money to pay for the down payment and closing costs? Am I working hard enough to improve bad credit? A house needs constant care and attention. Also ask yourself if your budget will allow for unexpected repairs and upkeep. Once you can honestly answer “yes” to these questions, you are several steps ahead of the game and that much closer to becoming a homeowner.

Closing the Best Deal

Learn more about taxes, inspections, & negotiating the best deal.

Where & What to Buy

Condominiums, new homes & vacation homes.

Insurance

Is private mortgage insurance necessary?
Lenders require private mortgage insurance (PMI) on most conventional loans with less than a 20 percent down payment. They believe there is a correlation between borrower equity and default. They have found that the less money borrowers put down, the more likely they are to default on a loan. PMI guarantees the lender will not lose money if this happens and a foreclosure is necessary. The buyer pays this insurance, usually a small fee at the outset and a percentage of the face amount of the loan that is added to the monthly payment. What most homeowners do not realize is that the insurance is usually no longer necessary after enough equity has built up in the property. Contact your lender if you meet this requirement. A precaution: do not confuse PMI with mortgage life insurance. The latter pays all, or a portion, of your mortgage in the event of your death.
What about title insurance?
Title insurance protects the lender against unclear title to the property you are buying. It is almost always a requirement for closing on a home. If you desire coverage as well, buy an owner’s policy, which will protect you against any title-search errors and losses that arise from disputes over property ownership. The cost of title insurance is usually a set value per thousand of dollars of the total loan amount.
What does homeowners’ insurance cover?
It protects against disasters – whether natural, manmade or mechanical. A standard policy insures the home, as well as your possessions. Because this insurance is packaged, it covers liability for any harm, loss, and property damage that you or your family members cause others. And it includes additional living expenses in case you are temporarily displaced because of damage from a fire or other insured disaster.

While you are not legally required to purchase homeowners' insurance, mortgage lenders require you to do so." or "mortgage lenders stipulate that you must.

If your mortgage is paid up - or you never had one - it is still a good idea to have homeowners’ insurance to protect your home and your belongings.
What is condo and co-op insurance?
This insurance protects your investment and personal belongings from most disasters. As an owner, you will need two insurance policies – your own to cover liability, living expenses, your belongings and structural improvements, and a master policy provided by the condo or co-op board. The master policy covers the common areas that you share with others in the building. It is paid for using the monthly condo fee that you and other owners pay.
What kind of home insurance should I get?
A standard policy will do in most instances. It protects against several natural disasters and catastrophic events. However, it will not guard against earthquakes, floods, war, and nuclear accidents. The policy can be expanded to include these disasters as well as coverage for such things as workers' compensation. In fact, the lender may require that you purchase flood or earthquake insurance if the house is in a flood zone or a region susceptible to earthquakes.

You also can increase coverage beyond the depreciated value of personal property such as televisions and furniture by purchasing a replacement-cost endorsement. Home-based business-coverage, once overlooked, is an ever-increasing popular rider. It does not cover liability associated with the business but rather contents such as home office equipment and general liability to cover injuries to clients and employees.

Other considerations: an inflation rider, which increases coverage as the home’s value rises, and getting insurance that is equal to the full replacement value of the home.

Insurance companies usually require an amount equal to at least 80 percent of the full replacement value. Otherwise, only a portion of the loss would be covered.

Work With Eva

Eva helps busy consumers in or near the city find homes in the suburbs. She offers information about the local real estate market and tips and tricks to help home buyers and sellers achieve their real estate goals.

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