APPRAISALS AND INSPECTIONS, AND MORTGAGES, OH MY! HERE’S THE TOP QUESTIONS ASKED & WHY
by: Sara E. Teller
Let’s face it. Whether you’re preparing to buy or sell a home, the process can seem daunting. Just thinking about all of the steps involved probably makes your head spin. But fear not. You’ll be well-supported by a team of experts available to answer any questions along the way. And, of course, if you’d rather do some research before you pick up the phone, the internet is an amazing place to find answers to some of your top questions. Here are a few simple solutions to jumpstart your search.
So, what’s the deal with the appraisal?
If you’ve heard the term but are still unsure what the process involves, exactly, it’s important to understand that appraisals are an essential piece of the buying and selling process. Regardless of which side of the fence you’re on, you’ll want to know how much a home is worth, and an appraiser can check out what is has to offer, consider the comps (aka, comparable properties sold nearby) and come up with a number. While you can get a ballpark by scouring the web for recent sales, having your specific property appraised is the only way to account for every intricate detail.
Is a home appraisal necessary?
Short answer, yes. Think of it this way: When you’re looking to drop some serious dough a new vehicle, you first want to know what it’s worth. And you’re able to determine its worth by considering the current market and comparing it similar models. The same logic applies to pricing a home – the number is based on economic conditions and equivalent properties. In both scenarios, of course, you’d want to solicit the advice of an expert.
Do appraisers really know best?
Yes, yet again. They come to an evidence-based conclusion. However, the concept of an item’s worth tends to be viewed as both complicated and subjective. Of course, this neither the time nor place for an in-depth discussion of economics, but things tend to get a bit hairy when you don’t agree with the number.
If you owe more than what your home is appraising for, for instance, you’ll likely be less inclined to accept the appraisal price. Or, if the home you’re looking at won’t appraise for what you’re willing to offer, you may be wondering why it even matters – you want it anyway! Plus, you could think linoleum is way better than ceramic title. Why the heck is ceramic worth more? Suddenly the process doesn’t seem so cut and dry.
How much renovating needs to be done before a home is appraised?
If you remember the concept of ‘majority rules’ when it comes to a valuing a home, you’ll be in good shape. This is why many sellers choose to paint over their beloved artistic murals or swap out shag carpeting for hardwood before the ‘for sale’ sign goes up. Too much personalization is likely to decrease the property’s price. Opting to even the playing field, however, by neutralizing the space will allow for a more objective (and likely higher) assessment. Just make sure you don’t over-renovate and price your property out of the market. Less can sometimes be more.
What’s involved with a home inspection inspection?
If you’re preparing to buy a home, you’ll want to get it inspected. Normally, as the buyer, you will pay for this service – because, well, it’s in your best interest to get it done. A home inspector will once-over the property, taking an in-depth look into all its nooks and crannies, and let you know if there’s any red flags. From there, you can decide whether the home is good-to-go or needs some adjustments before it sells.
What should the seller disclose?
There are many things a seller is required to disclose by law, unless, of course, the purchase agreement has a clause that states it’s being sold ‘as is.’ That’s when the home inspection is really worth its weight in gold and you’ll want to read and re-read the fine print to see exactly what you’re getting into. Properties tend to be listed ‘as is’ when they’re a problem or the potential for problems. Foreclosures and short sales are notorious for including this provision.
Here are a few things a seller must have to legally disclose…
Hazardous materials. Many homes built prior to the late 1970s contain lead paint, and if it’s still lurking in the walls, a seller must say so. The same goes for asbestos and mold concerns. If there’s something which can interfere with a buyer’s health, it’s best to outline this in the paperwork. Refusing to disclose can open a seller up to future litigation.
Property boundary issues. If the driveway, a fence, a planted tree, a boxed garden or anything else is even ‘technically’ on the neighbor’s property, this must be mentioned. Not all neighbors care, but some certainly do, and this could set a buyer up for arriving too late to a long-standing dispute. As a buyer, you’ll want to pay particular attention to anything that overlaps boundaries and may need to be remove at a later time. Is there a large tree all-too close to the roof that looks like it’s decaying? If it sits in between and you decide to cut it down, your neighbor will also have to give the green light.
Paranormal activity. Yes, it sounds silly, but some states really do require the disclosure of any hauntings, even the friendly ones. So, if a seller is hitting the high road because they’re being harassed by something out of this world, the reason for running should be revealed. After all, buyers, too, tend to shy away from sharing their space with ghosts.
A one-time crime scene. In some areas, a buyer must be made aware when an ‘emotional defect’ such as a homicide, suicide or violent crime has occurred on a property. There’s usually a statute of limitations, of sorts, for such disclosure but if the defect is recent, chances are it’s illegal to keep it a secret. A seller should disclose before the buyer finds out in a roundabout way.
Drainage issue or flooding. Water damage is no joke. If puddles tend to accumulate too close to the home or the basement is prone to flooding, this needs to be in the paperwork. Properties sitting on high groundwater tables are riskier buys, and this data is public record. However, any issues specific to the property would only be available to the buyer if the seller tells all.
The laws involving disclosure vary by location, and these are just some to be on the lookout for. Buyers also should never be afraid to ask about anything that’s personally concerning, even if it’s necessarily illegal to hold back.
So, if there’s a problem with the home inspection– who should fix it?
If there are significant issues, buyers can ask that these be fixed before they buy. Depending on how quickly the move needs to be in motion, however, or the seller wishes to get out, a discount on closing costs or extra cash incorporated into the deal could also be viable options. Securing the funds up front may be preferrable to buyers looking to do the work themselves. If an agreement can’t be reached, the buyer must either eat the cost or start a new search.
What would be considered a deal breaker?
It really just depends. If significant work needs to be done to bring the property up to par, it may be best to forgo listing it or moving forward with a purchase until these issues are taken care of. Electrical concerns, foundation flaws, a defunct furnace, extensive mold, a must-have feature that’s currently nonexistent or a decaying roof can all be especially expensive fixes and might be considered ‘deal breakers.’
Which mortgage is best?
This is a personal question. No, really. To figure out which mortgage is best for you, you’ll have to have a solid understanding of market conditions, your overall financial picture and what you can afford, and how you plan to use the property. Are interest rates currently high or low? If they’re at an all-time low, you may want to lock in the same rate over the course of the loan. In this case, conventional is best. Are they at an all-time high? You can always refinance later, but this equates to additional time and money. So, maybe you want to think about taking out an arm – not like one that’s attached to your body, but an adjustable-rate mortgage with a rate that’ll fluctuate over the course of the loan. You’ll also want to think about why, exactly, you need a mortgage to begin with. Are you looking to purchase your dream space, a fixer-upper flip, a starter home? If you plan to be there a while, perhaps a 15-year fixed is best so you can enjoy additional years of having the home paid off. If you think you may want to transition to a larger abode at some point, how ‘bout a 30-year fixed or an adjustable option? Talk to your broker about your plans and what interest rates are doing to determine what’s best.
Should I get ‘prequalified’ for a mortgage?
If you’re preparing to buy a home, you can give yourself a leg up in the buying process by becoming ‘prequalified’ for a certain amount before you start your search. Doing so allows you to look like a motivated buyer with a stronger offer than someone who doesn’t have the same letter in hand. Think of prequalification like a reference letter in a job search. Do you have to have it? Not always. Does it make you look more driven? You betcha!
What does it take to get a mortgage?
Getting prequalified involves a super easy process with a quick turnaround of usually just a day or two. All you have to do is give your mortgage broker your estimated annual income, credit score, best-guess assets to liabilities ratio and the amount you’ve set aside for a down payment.
No credit, no problem or BIG problem?
Well, again, it depends. If you’re hoping to get a conventional mortgage, you’ll need a solid score. If you don’t have a credit history, you’ll want to ask your broker about alternative options. You’ll also want to prove, at the very least, you have a stable income stream and are able to dish out the down payment, which could essentially ‘make up’ for what’s missing. It’s more difficult to get a mortgage, generally speaking, without this piece of the puzzle.
What will the down payment be, ballpark?
Before you take out a mortgage, you’ll probably want to start banking those down payment reserves. If you are able to fund at least 20% of the purchase price, you’ll avoid paying for private mortgage insurance (PMI), an additional amount looped into the loan when you can’t meet this percentage. PMI is generally added to the mortgage for a decade or more, so essentially, you’ll either be paying for it now or over time. Being able to forgo the 20% up front, though, will open up your options house hunting wise.
If you still have a ton of questions swirling around in your head, consider jotting them down so you have a list to reference when you reach out to the professionals that will be helping you along the way. Take a deep breath. It’ll be okay. You’ve got this, and you’ll be supported through every step!