Understanding Property Value: The Role of Appraisals and Appraisers
In the ever-evolving world of real estate, understanding what determines the value of a property is crucial for both buyers and sellers. From residential homes to commercial buildings, numerous factors play a role in shaping a property's market value. This blog post delves into these key factors and explains the pivotal role of real estate appraisals, highlighting why the objective assessments conducted by professional appraisers are integral to the industry and how they remain unaffected by salespeople, including realtors.
Factors Affecting Property Value
Location
The adage "location, location, location" remains at the forefront of determining a property's value. Proximity to amenities, quality of local schools, and community safety are paramount, especially for residential properties. For commercial properties, factors like accessibility, visibility, and local economic health are key determinants.
Condition and Age
The physical condition of a property, its architectural style, and age significantly influence its valuation. Upgraded and well-maintained properties fetch higher prices. For commercial properties, functional utility and compliance with current building codes are additional critical factors.
Market Trends
Real estate markets are influenced by broader economic indicators such as interest rates, employment rates, and economic growth. These trends affect both residential and commercial property values differently, depending on the market's reaction to economic conditions.
Size and Layout
The property's size, including square footage and the number of bedrooms or bathrooms for residential properties, and usable space for commercial properties, impacts its value. Layout and functional usability also play a crucial role in assessing a property's appeal and worth.
The Importance of Real Estate Appraisals
Real estate appraisals provide an unbiased estimate of a property's worth at a specific point in time. Appraisals are conducted by licensed professionals who use a combination of methods to determine a property's value, considering the factors mentioned above among others.
Why the Industry Relies on Appraisals
Objective Evaluation: Appraisers offer an impartial assessment that neither favors the buyer nor the seller, ensuring a fair market value is established for the property in question.
Financing Decisions: Lenders require appraisals to ensure the property's value supports the loan amount requested. This is crucial in mitigating risk in lending for both residential and commercial properties.
Insurance and Taxation: Accurate appraisals are necessary for determining the appropriate amount of property insurance and for taxation purposes.
Realtors Cannot Influence Appraisals
The integrity of the appraisal process is protected by strict regulations and ethical standards that prevent realtors or any salespeople from influencing the work of a real estate appraiser. This separation ensures that appraisals reflect an objective value of the property, based on comprehensive analysis and expertise.
Regulatory Oversight: Appraisers are regulated by federal and state guidelines, which include the Uniform Standards of Professional Appraisal Practice (USPAP), ensuring their independence.
Ethical Standards: Professional ethics dictate that appraisers must provide an unbiased service, free from outside pressure, including attempts by realtors to influence the appraisal outcome.
Conclusion
Whether dealing with residential or commercial properties, understanding the multitude of factors that influence a property's value is essential. Real estate appraisals stand as a cornerstone of this understanding, providing an objective, regulated, and unbiased valuation that serves as a critical tool for buyers, sellers, and lenders alike. By relying on the expertise of professional appraisers, the real estate industry upholds the fairness and integrity of property valuations, ensuring that all parties can make informed decisions based on accurate, reliable appraisals.
This comprehensive approach to explaining property value and the importance of real estate appraisals offers a clear understanding of the appraisal process's role in the real estate market, reinforcing the value and integrity of professional appraisals in both residential and commercial real estate transactions.
Choosing the Right Home
Looking for the right home can be a daunting process for first time buyers and seasoned vets alike. From the style of the house to the type of appliances, there are countless factors that can go into such a big purchase. The following short checklist outlines the most important things you should think about when you're on the hunt for a new home.
1. Define your budget:
It's never fun to fall in love with a house that you can't afford. Avoid the heartbreak by taking the time to analyze your financial situation before you begin the search. Start by reviewing your credit score, monitoring your debt and choosing an appropriate down payment. Meeting with a financial professional can help you get an accurate picture of your financial situation and the loans you are eligible for.
Looking at your debt-to-income ratio is one of the ways that creditors establish how qualified you are for a mortgage loan. Your debt-to-income ratio is determined by taking your monthly debt (think current mortgage payments, student loans, car loans, etc.) and divide them by your gross monthly income. Ideally, you want to keep that ratio at 43% or lower. According to the Federal Consumer Finance Protection Bureau, "studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a Qualified Mortgage."
Don't skip the down-payment analysis! A huge factor in getting the best mortgage rate relies on how much cash you are able to put down initially. The rule of thumb has been to put 20% down as a minimum. Anything below the 20% rule will usually require mortgage insurance and end up costing you more on the loan long term. Determining the right path for you will require you to analyze your own situation—your budget, timeframe and any other factors involved in figuring out your financial capacity to save and put money away for your new home.
2. Your Must-Have List:
Always search for homes that meet your "must-have" list. A must-have list encourages you to write out exactly what you need in a new home and will significantly aid in narrowing down the scope of your search, especially when searching with another person. This list will also foster communication on critical aspects of your new home that might not have been discussed previously, and help you identify requirements that may be in conflict with each other.
Focus your list on the high-level, pricey aspects of a home. Minor changes such as painting and smaller renovation projects can be worked on down the road, but changes that add up in time and money should be avoided (think kitchen remodels or adding another bathroom). Narrowing down your search to homes that don't require major changes will help ensure you choose a home that is within your budget.
If you are struggling on where to start, think about what type of home you want to live in–Single Family or Townhome/Condo? How many bathrooms and bedrooms do you need? Do you want a fireplace or pool? What's the minimum lot size you would be comfortable with and do you require a garage? What about air conditioning?
Keep your list short and sweet–try to keep your must-haves on the shorter side by focusing on major requirements and ranking them by importance. Prioritizing your list will help when it comes to decision-making time, as selecting a home will often require some flexibility. Your list will provide you with an easy way to determine which aspects you can compromise on and which are red flags telling you to move on.
Compromise can be hard, but don't let small things completely take a home off of your short list. Remember, minor changes such as painting and smaller renovation projects can be worked on down the road, however, if there are a lot of these things the costs of those projects can add up. Focus on the minor modifications that you feel comfortable changing.
3. Location, Location, Location!
While the importance of location is often a no-brainer, the location of your potential new home serves multiple purposes. Location will impact your daily life and happiness as well as your home's value down the road.
When looking at location in terms of resell value, you want to look at a multitude of things: school districts, crime stats, and the neighborhood & community. A little research can answer most of these questions, and this website offers Market Insider, a tool to give you details on all these factors and more! Besides looking at the current stats and trends, take this information and think about what the value of the area might be in 5 or 10 years when you potentially could resell your home.
Along with the resale value, analyze the location of a home from the perspective of your wellbeing and happiness. Things such as your daily commute, surrounding noise, and community will greatly shape your experience in the home.
Along with this checklist, seeking guidance from a professional is always a good idea! A realtor like me can offer a wide array of skills and expertise, from the showing of a home to the endless paperwork. You can count on me to guide you through the process and assist in your home buying decisions.
Finding the right home might not necessarily mean finding the "perfect" home, but rather, finding the right home for you to make your own. Hopefully this checklist provides you with a guide to start your journey towards the right home. When you're ready to start looking, don't hesitate to give me a call!
5 DIY Improvements to Make Your Home Classier
Updating your home to be more chic - without looking cheap - is completely doable on a budget.
If you're looking to add more class to your home, taking on a DIY project can give your house that extra sense of style while saving you money. No need to cringe at those three little words: "do it yourself." There really are fast, easy and affordable projects you can do on your own. Here are five relatively easy ways to enhance your home.
1. Replace Your Light Fixtures
Switching out an old or basic light fixture for a more elegant one is an easy way to shift the ambiance of a room. By adding a sophisticated light fixture, you can control the intensity of the light and character of your room. And you don't need to pay a pretty penny for expensive new fixtures - you can buy used fixtures online.
2. Add Floating Shelves
Installing floating shelves in your home combines the functionality of extra storage space with a bit of style and personal flair. Floating shelves can be mounted on walls in many different patterns, and they come in various materials to give your rooms a unique touch. For a small room choose shallow shelves to display framed photos; for a larger room you can afford to use deeper shelves to hold vases, books and unique trinkets.
3. Paint an Accent Wall
Painting an accent wall can add a pop of color and showcase your personality. Usually a low-risk project, a homeowner of any skill level can tackle this project in a day. You just need some painter's tape, a brush and the color that suits you! Just make sure the color you choose is complementary with the other colors in the room. Stay consistent between warm and cool tones.
4. Install Decorative Molding
Adding decorative molding around your home can add an extra touch of elegance. Install molding to the ceiling by capping walls, columns and cabinets, or add chair molding lower to the ground. With detailed molding you can add character to your rooms while also making them feel taller and more finished.
5. Build a Stone Fire Pit
Take your sophisticated style outside by building a stone fire pit in your backyard. Completed in only a few hours, take uniquely shaped rocks or large stones and put them together to create a functional and stylish fire pit. Before starting the project, be sure to check your local fire codes or homeowners association to ensure you are safe and allowed to start building.
Adding a touch of class to your home doesn't have to break the bank! Just be sure to start with one project at a time, allowing yourself to complete one before starting the next. Otherwise, you'll fall victim to chronic project incompleteness syndrome - not a good look!
Now that you know about these five inexpensive DIY projects, which will you try?
Top 4 Deal Killers for Homebuyers
Falling in love is exhilarating. It can also be a bit scary, especially when a home has captured your heart. What if something goes wrong and you end up not spending the rest of your life with this stack of brick and mortar you're lusting after?
No matter how careful you are, some deal killers are unavoidable. Others, however, are preventable, so pay heed if you hope to keep your deal alive.
1. Don't Mess with Your Mortgage Preapproval
A common reason for a real estate deal to fall apart is that many homebuyers don't fully understand the mortgage process. Sure, you may get a loan preapproval, but don't think for one minute that this guarantees you will get the loan. It doesn't.
Here's what happens after you receive your preapproval letter and decide to move forward with the purchase. The lender will start your file, give you a list of paperwork required, order an appraisal and credit reports, verify your employment and income, and more.
The file is then sent to the processor who will review all of your information as well as the appraisal. He or she will then put together a package of all pertinent information to be sent to the underwriter.
The underwriter is the person who ultimately determines whether or not you are an acceptable credit risk. He or she will assess your ability to repay the loan, your credit, and the collateral used to secure the mortgage - in this case the collateral is the home. Then, just before funding the loan, the underwriter will perform what is known as a "soft pull" of your credit information to see if anything has changed.
This is the point where many borrowers run afoul. If you hope to keep your purchase alive, don't do anything - from application to closing - that might change your financial picture and sabotage your final approval. This means no shopping on credit for appliances, furniture or anything else. Don't switch jobs, fall behind on your bills, co-sign a loan for anyone, or in any way reduce the income stated on your application.
2. Read Homeowners Association Documents Carefully
When you purchase a home in a managed community governed by a homeowners association (HOA), you'll be given a mountain of paperwork to read and approve. Because there may be deal killers included in the fine print, it's important to get to this task immediately upon receipt of the documents.
Look for any information about liens against the property; current litigation against the HOA, the builder, or the developer; and any red flags in the HOA budget. Since these documents aren't easy to read and understand, it is worth the money you'll spend to have your attorney look them over and advise you of any potential deal killers lurking within.
While the aforementioned HOA problems could potentially derail the deal, it's better to have it happen upfront rather than when you're further along in the process.
3. Home Inspection Problems
All homes - even newly constructed ones - may have problems. Going into the process not fully understanding this can set you up for a failed real estate deal. Sure, you ideally want to find a home that was owned by Mr. or Mrs. Clean who conscientiously took care of it during their entire ownership, but those are few and far between, and seeking them out is unrealistic.
Set your sites on finding a home that has small, easy-to-fix problems, and don't freak out if some are worse than others. In other words, when considering making an offer, laugh at the loose doorknob but negotiate when it comes to water damage or worse.
The nitpicky homebuyer, who plans on nickel and diming the homeowner into replacing missing switch plates and dripping faucets, is the picture of a deal-breaker-in-the-making. Sure, in a buyer's market you may get away with minor demands. In a seller's market, however, there is always a cleaner offer right behind yours.
4. Budgeting Blunders
The real estate industry does a bang-up job of reminding homebuyers that they'll need a down payment - typically from 3 percent to 20 percent of the total loan amount - when they purchase a home. What they often fail to inform real estate consumers about are the loan's closing costs - the money you will be required to pay before the house is yours. This is most likely because closing costs are a little harder to pin down. They vary wildly and depend on the type of loan, the amount of the down payment, and a host of other factors.
Unfortunately, this lack of information frequently causes real estate deals to disintegrate. To avoid this particular problem, pay attention to all communications from your lender.
First, you will receive a form called a Loan Estimate. Look this over carefully to ensure that everything your lender agreed to is included. Pay close attention to the "Calculating Cash to Close" section, which concludes with an estimated cost to close the loan. Remember, this is an estimate and the amount may go higher or lower in the end. Speak with the lender if you find any problems here, especially if it will be impossible for you to come up with this money.
Just before closing you will receive the "Closing Disclosure," which is quite similar to the estimate, but these figures are final. Again, review the "Cash to Close" figure.
By and large, real estate deals conclude successfully. Typically, it all comes down to the experience of your agent. Choose wisely and you'll avoid the common pitfalls that can derail transactions. For a smooth, low-stress real estate transaction, slow down, keep your expectations realistic and heed the advice of your real estate agent or attorney.