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| Buying A Home: Appraisal And Inspection Reports |
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Home Appraisal
Can Make Or
Break Your
Buying Decision
Can Make Or
Break Your
Buying Decision
After months of searching for the home of
your dreams you have finally found it. You
are happy to pay the asking price of
$600,000 and you are ready to move in.
But before the deal can be sealed your
lender insists on an appraisal report. You
have to hire an appraiser.
Now, before you get mad at the lender
and decide to "take your business"
elsewhere", realize that all lenders will
want an appraisal report. The property
appraisal not only protects the lender, it
also protects you, the borrower. The
appraiser is a professional, with
membership in the Appraisal Institute,
and goes by the facts. The emotional
aspects of buying and selling a house are
removed from the equation.
There are two methods of appraising a
property. There is the cost approach. This
method breaks down each feature of a
house and applies a cost to those
features. For example, the cost of the land
will be determined, the cost of labor, the
cost of the various materials and fixtures
will all be examined. The sum total is what
the house is worth.
The second method of appraisal of a
house is to use comparables. This is the
market value or sales comparison
approach. The reasoning behind this is
that if we take similar houses in similar
neighborhoods, a prudent buyer would
pay the same for any one of the houses.
This approach is used by appraisers in
today's market. You will hear your real
estate agent say "I will pull all the comps
for the last two months and get back to
you". What he will do is go through the
MLS sales and look for the houses that
match the house you are buying. They will
have the same number of bedrooms, the
same number of bathrooms, the same
square footage, lot size and so on.
The appraiser does a more precise and
scientific analysis than your real estate
agent would. The appraiser will supply
maps, pictures, and a narrative in the final
report. The appraisal is sent directly to the
lender and you will get a copy as well.
The issue with appraisals is when they
come in too low. Your first reaction is "Oh
no!". But remember the appraisal is
unbiased and it protects the buyer and the
lender. So in this case what happens if
the appraisal on your $600,000 house is
only $520,000? If your lender was
prepared to lend $540,000, or 90%, now
he would only lend $$468,000. This is still
90% loan to value. If you still want to
proceed with the deal you would have to
come up with a downpayment of
$132,000. This doesn't make good
financial sense because you would be
overpaying for the house.
Your best option would be to sit down with
the appraiser and ask for an explanation.
Most appraisers would be more than
happy to go over the details with you.
After you have reviewed the report with
the appraiser and are satisfied with the
appraisal, you can now go back to the
seller and tell him that the house is
overpriced. This gives him the opportunity
to revise the price to the appraised value.
If there is no change in price, simply walk
away from the deal. The most it would
cost you is the appraisal which is about
$300. This is a small price to pay
your dreams you have finally found it. You
are happy to pay the asking price of
$600,000 and you are ready to move in.
But before the deal can be sealed your
lender insists on an appraisal report. You
have to hire an appraiser.
Now, before you get mad at the lender
and decide to "take your business"
elsewhere", realize that all lenders will
want an appraisal report. The property
appraisal not only protects the lender, it
also protects you, the borrower. The
appraiser is a professional, with
membership in the Appraisal Institute,
and goes by the facts. The emotional
aspects of buying and selling a house are
removed from the equation.
There are two methods of appraising a
property. There is the cost approach. This
method breaks down each feature of a
house and applies a cost to those
features. For example, the cost of the land
will be determined, the cost of labor, the
cost of the various materials and fixtures
will all be examined. The sum total is what
the house is worth.
The second method of appraisal of a
house is to use comparables. This is the
market value or sales comparison
approach. The reasoning behind this is
that if we take similar houses in similar
neighborhoods, a prudent buyer would
pay the same for any one of the houses.
This approach is used by appraisers in
today's market. You will hear your real
estate agent say "I will pull all the comps
for the last two months and get back to
you". What he will do is go through the
MLS sales and look for the houses that
match the house you are buying. They will
have the same number of bedrooms, the
same number of bathrooms, the same
square footage, lot size and so on.
The appraiser does a more precise and
scientific analysis than your real estate
agent would. The appraiser will supply
maps, pictures, and a narrative in the final
report. The appraisal is sent directly to the
lender and you will get a copy as well.
The issue with appraisals is when they
come in too low. Your first reaction is "Oh
no!". But remember the appraisal is
unbiased and it protects the buyer and the
lender. So in this case what happens if
the appraisal on your $600,000 house is
only $520,000? If your lender was
prepared to lend $540,000, or 90%, now
he would only lend $$468,000. This is still
90% loan to value. If you still want to
proceed with the deal you would have to
come up with a downpayment of
$132,000. This doesn't make good
financial sense because you would be
overpaying for the house.
Your best option would be to sit down with
the appraiser and ask for an explanation.
Most appraisers would be more than
happy to go over the details with you.
After you have reviewed the report with
the appraiser and are satisfied with the
appraisal, you can now go back to the
seller and tell him that the house is
overpriced. This gives him the opportunity
to revise the price to the appraised value.
If there is no change in price, simply walk
away from the deal. The most it would
cost you is the appraisal which is about
$300. This is a small price to pay
House Inspection
Is A Must Before
You Sign The
Closing
Documents
Is A Must Before
You Sign The
Closing
Documents
When you are buying a house you should
always insist on a home inspection. Get
your real estate agent to put this condition
in your offer. It will protect you if the house
has some defects, such as a leaky roof, or
substandard electrical wiring. Ask your
lawyer and real estate agent to recommend
a couple companies that they use for
inspection services.
If a home inspection is not possible
because you are buying a house that was
seized by the government and is being sold
on the steps of the court house, then be
prepared for problems. If this is the case
then you have to offer pennies on the dollar
for the deal.
The home inspector is sometimes
confused with a real estate appraiser. A
home inspector determines the condition of
a house, whereas an appraiser determines
the value of a house.
A home inspection is basically a
bargaining tool for the buyer. Any defects
can be brought to the attention of the seller.
The seller now has the options of making
the necessary repairs and/or dropping the
price. If the buyer is handy with repairs he
might push for a price reduction.
The home inspection covers the essential
elements.
Electrical.
Wiring, circuit breakers, wall outlets, ceiling
fans, exhaust fans, grounding.
Structural.
Construction of walls, framing, ceilings,
floors, roof and foundation.
Systems.
Furnace, fireplace, sprinklers and heating
and air conditioning.
Exterior.
Wall covering, landscaping, grading,
elevation, drainage, driveways, fences,
sidewalks, fascia, trim, doors, windows,
lights and exterior receptacles.
Plumbing.
Bathrooms, toilets, hot and cold water,
water pressure, leaks.
Your lender will want to be in the loop
regarding the home inspection. As long as
there are no major problems the deal
should proceed as planned. If a major
repair, such as asbestos removal, is
needed the seller will be asked to fix the
problem at his expense.
In some cases the home inspection might
include areas where specific training and
education is required from the home
inspection. These include soil testing,
asbestos, lead, mold, mildew, rodents,
radon, methane and radiation.
always insist on a home inspection. Get
your real estate agent to put this condition
in your offer. It will protect you if the house
has some defects, such as a leaky roof, or
substandard electrical wiring. Ask your
lawyer and real estate agent to recommend
a couple companies that they use for
inspection services.
If a home inspection is not possible
because you are buying a house that was
seized by the government and is being sold
on the steps of the court house, then be
prepared for problems. If this is the case
then you have to offer pennies on the dollar
for the deal.
The home inspector is sometimes
confused with a real estate appraiser. A
home inspector determines the condition of
a house, whereas an appraiser determines
the value of a house.
A home inspection is basically a
bargaining tool for the buyer. Any defects
can be brought to the attention of the seller.
The seller now has the options of making
the necessary repairs and/or dropping the
price. If the buyer is handy with repairs he
might push for a price reduction.
The home inspection covers the essential
elements.
Electrical.
Wiring, circuit breakers, wall outlets, ceiling
fans, exhaust fans, grounding.
Structural.
Construction of walls, framing, ceilings,
floors, roof and foundation.
Systems.
Furnace, fireplace, sprinklers and heating
and air conditioning.
Exterior.
Wall covering, landscaping, grading,
elevation, drainage, driveways, fences,
sidewalks, fascia, trim, doors, windows,
lights and exterior receptacles.
Plumbing.
Bathrooms, toilets, hot and cold water,
water pressure, leaks.
Your lender will want to be in the loop
regarding the home inspection. As long as
there are no major problems the deal
should proceed as planned. If a major
repair, such as asbestos removal, is
needed the seller will be asked to fix the
problem at his expense.
In some cases the home inspection might
include areas where specific training and
education is required from the home
inspection. These include soil testing,
asbestos, lead, mold, mildew, rodents,
radon, methane and radiation.
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