Real Estate Terminology

Confused About Your Home Appraisal – Know the Guidelines

The home appraisal process often baffles home buyers and homeowners alike. You may feel that your home is worth a higher dollar amount, and so the appraised home value may not always make sense to you.

First, it is important to know that the home appraiser is completely independent from mortgage lenders, home buyers, home sellers, homeowners, and real estate agents.

Second, the guidelines to which they adhere are dictated by the Uniform Standards of Professional Appraisal Practice (USPAP) and Fannie Mae. In most states, mortgage lenders must also disclose the purpose of the home appraisal, as each mortgage transaction carries its own set of rules.

These important appraisal guidelines help home appraisers put a fair market value on homes based on comparable home sales in the same area, for instance the community of White Oak Estates located in Highland Indiana and/or Munster Indiana.

The home must also be bracketed in size and value. For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at a higher percentage of their value in newer homes because the only way to obtain those upgrades was to put more money into the cost of building the home.

On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because typically 25-40% of the project involves demolition and the fixing of issues that aren’t uncovered until the project has already begun, such as plumbing or wiring that may need updating.

The value of the home upgrades must ultimately be supported by comparable home sales within the same marketplace such as home sales in Plum Creek in Schererville Indiana. These comparisons must be drawn from current real estate market activity within the last three to six months.

These guidelines further state that appraisers can only base their opinion on the value of home sales that have actually closed. This is a safeguard to prevent home appraisers from attaching too high a value to the home in question, and opening up the home appraisal for review.

Understanding and following the appropriate appraisal guidelines can help to create an easier and much smoother home loan transaction for you whether you are a home buyer or a homeowner.

Still confused about your home appraisal? Contact me for free review and explanation of your home appraisal.

Real Estate Terminology

Trading Up Homes? Consider Listing Your Existing Home First

Households in Porter County Indiana are starting to understand that it is a great time to buy property.

Some are looking at all those foreclosures on the market and dream of getting a deal for pennies on the dollar. Others, more realistically, are looking at the current market conditions and see a great opportunity to trade up to a larger home, or a nicer location, than the one they live in now.

You’ve found your dream home in Porter County Indiana and at a terrific price. What’s next?

You must be prepared to answer three tough questions on your quest for your dream home.

1) Are you ready to endure the long road ahead for your dream home?

Did you know it takes around 6 months, on average, to sell a home in Portage Indiana? The numbers in Chesterton Indiana are similar. In Valparaiso Indiana it can take up to 9 months, depending on price range and the area. So from the first day you list, to the day of closing, it may be easily 6 (+) months to get you moved.

2) Can you afford two mortgage payments?

Most people need the equity from House A in order to put down payment on House B. And unless you have lots of cash and above average income, you probably cannot afford mortgage payments from two homes at once. Consequently, if you are like most people you really need to sell first, then buy second.

3) How long will the seller of your dream home wait around while you put your house in order?

One technique Realtor’s use to extend deadlines is the Contingent on Sale rider. In other words, the contract to purchase the new home is conditional on selling the old one. Sounds great, but it puts everybody in a bind. You have agreed to buy a house but you can’t afford to finalize the process until you sell yours first. That’s a bind. You are asking the home seller to take their home off-the-market, then wait around while you sell. That seller is now in a bind too. Is it fair to the seller to have to wait several months due to your procrastination?

If the home seller is like most, they will only let you slide for 30 – 60 days. After that, the home sell will want the chance to sell to a different, more serious home buyer; serious, meaning someone else who is more prepared to CLOSE THE DEAL than you. Now, if you are committed to moving forward, you are forced to accomplish in one month, what it normally takes 6-9 months to complete, which means, forcing you to offer your home at a deep discount price simply to meet the deadline. That is a money losing bind.

What’s the bottom line to trading up homes when you have found your dream home?

Although it is possible to find your dream house first, then sell your existing home, the law of probability says otherwise. On the other hand with proper planning you will be rewarded with less stress, and significant cost saving, by offering your existing home for sale prior to searching for your dream home.

If you’re ready to trade up to your dream home in Porter County Indiana, let’s get your home listed today!

Real Estate Terminology

Understand Property Values Foot-By-Foot

To understand real estate property values one measurement that’s mentioned frequently  is Price-Per-Square-Foot. Simply put it is the PRICE of your home divided by its AREA. In other words,  how much you are paying for each 12 inch by 12 inch square. Easy right? If you have ever hired a contractor or bought carpet, they probably gave you a quote based on the size of the job or AREA of the rooms.

The most important reason for buyers and sellers to use this calculation is so you can compare  homes of different sizes. If one home is twice the size as another similar property it’s PRICE should be twice as much.

Comparing homes by price per square foot can give us great insights far beyond mere structure. Certainly we get a feel for it’s condition, and the quality of it’s construction, but beyond that are the amenities & landscaping, location of the home, even the surrounding community. All these add up to the home’s desirability or its’ value.

But let’s expand our view. Are there vacant homes on this block? Does one family have junk cars and trash all over? What price value can we put on a superior school system in dollar terms? Are there parks, a library, medical facilities  and shopping nearby? How much is a lakefront property worth more than one with just a lake view?

Taken together, do these outside  factors of the surrounding community give the house more value or take some value away? Understanding the price-per-foot measurement can be used not just for individual homes, but also for specific price segments, micro-neighborhoods, subdivisions, even entire towns.

Here is an example of how prices have fluctuated in Portage Indiana over the past year, measured in price per square foot terms. Notice  a 10% drop occurred in the average from $103 to $93 last Winter, then recently there has been a modest rebound.

So what changed exactly?  What made homes suddenly less desirable,  then become more valuable again?    Obviously none of the homes changed location.   Did the local home center have a clearance sale on granite counter-tops?  Probably not.  But the desirability of Portage Indiana real estate did change, first down, then up again, as reflected in hard dollars. Since the homes themselves didn’t change much, we will have to blame those mysterious “market forces”.

In future posts we will further break down the components that create and bend  these forces in more detail. For now just understand that the large sized numbers of real estate prices can be scaled down to the size of a shiny piece of 12 inch glazed ceramic tile that you can hold in your hand.

Real Estate Terminology

If All Real Estate Is Local, Who Cares About Averages

All real estate is local! If you’ve heard it once, you have most likely heard it a thousand times. How could you not hear this old cliche when working with real estate and mortgage professionals.

The May 2010 Public Awareness Campaign from the National Association of REALTORS® even states:

“Every market’s different, call a REALTOR® today.” – What Matters Most

If this is true, why is all the focus on averages? Why should you, for instance, care about averages?

Here is a sample chart to illustrate average days on market for single family homes in Schererville Indiana.

From this chart, it appears that the Schererville Indiana real estate market is improving as the average days on market is nearing 180 days which is an indication of a balanced market. Be mindful that this is the average days on market for the entire spectrum of single family homes for sale in Schererville Indiana.

Wait a minute. Your home is not like everyone else’s home and the home you want to buy is so much nicer than other homes on the market. Let’s break the average days on market down to quartiles based on list price. The chart on the left below represents the top 25% of homes for sale in Schererville Indiana. The chart on the right below represent the bottom 25% of homes for sale in Schererville Indiana.

        

 

Do you notice anything different? Do you notice anything that is similar?

If  you recall, the average days on market for the entire spectrum of single family homes for sale was nearing 180 days. For the homes listed in the top quartile, most expensive, the average days on market is 40% longer. For the homes listed in the bottom quartile, least expensive, the average days on market is 15% less.

Depending on what price point you are looking to buy a home or sell a home, knowing the specific real estate trends and statistics to that real estate market would be critical to your decision making process. So back to the question…why should you care about averages?

Regardless of which graph you look at above, the real estate trend for average days on market in Schererville Indiana is definitely improving. Averages help illustrate trends and consequently helps manage expectations.

Real Estate Terminology

What’s a Short Sale and Why This Option?

A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.

By way of example, a Short Sale may be appropriate for a home seller in Crown Point, Chesterton, Munster, Saint John, Schererville or Valparaiso whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000.  Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.

Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. And, two, the lender is forced to take a loss on a mortgage loan.  Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.

For this reason, Short Sales are sometimes considered “the economical alternative” to default in Northwest Indiana.

The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers in Highland, Portage and Valparaiso should not go at it alone — speaking with a real estate agent about the proper protocol is usually the best place to start.  And sellers should be aware of how a Short Sale on their credit can impact future borrowing.

Current Fannie Mae guidelines prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.

Contact Benchmark Mortgage in Northwest Indiana to Qualify for Your FREE FHA Home Loan Approval Today!

Real Estate Terminology

What Is APR?

APR is an acronym for Annual Percentage Rate.  It’s a government-mandated calculation meant to simplify the comparison of mortgage options.

A loan’s APR can always be found in the top-left corner of the Federal Truth-In-Lending Disclosure.

Because APR is expressed as a percentage, many people confuse it for the loan’s interest rate.  It’s not.  APR represents the total cost of borrowing over the life of a loan.  “Interest rate” is the basis for monthly mortgage repayments.

The main advantage of APR is that it allows an “apples-to-apples” comparison between loan products. 

As an example, a 5.000 percent mortgage with origination points and fees will almost certainly have a higher APR than a 5.500 percent mortgage with zero fees.  In this sense, APR can help a borrower determine which loan is least costly long-term.

However, APR is not without its shortcomings.

First, different banks includes different fees into their APR calculations.  By definition, this spoils APR as a choose-between-lenders, apples-to-apples comparison method.

And, second, when calculating APR, “life of the loan” is assumed to be full-term.  When a 30-year mortgage pays off in 7 years or fewer – as most of them do – APR comparisons are rendered moot.

In other words, APR is just one metric to compare mortgages – it’s not the only metric.  The best way to compare your mortgage options is to review all the loan terms together and determine which is most suitable.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Real Estate Terminology

Simple Real Estate Definitions: Escrow Account

An escrow account is a designated savings account into which funds get deposited for a specific purpose.

With respect to real estate and home loans, escrow accounts are used to pay real estate tax bills and homeowners insurance payments.

Escrow accounts are managed and disbursed by lenders.

When a homeowner “escrows” his mortgage, along with his scheduled monthly mortgage payment, he must also send an additional payment to the lender equal to 1/12 of the home’s annual real estate tax bill plus 1/12 of the annual homeowners insurance bill.

By sending a pro rata portion of the tax and insurance bill each month, the homeowner’s escrow account will always, in theory, have enough funds to make payments in full as tax bills and insurance premiums come due.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.

Real Estate Terminology

Simple Real Estate Definitions: Quitclaim Deed

By its most common definition, a quitclaim deed is a document by which one person passes legal and financial ownership of a home to another person.

It’s also a way for an owner of a home to remove himself from the title to the property.

Often misspelled as “quick claim deed” or “quit claim deed”, quitclaim deeds have a multitude of applications, including:

• Assigning a home to a trust or entity
• Adding a partner to title after marriage
• Removing a partner from title after divorce

In order to quitclaim a property, the grantor must have the legal right to assign the property to a grantee, or else the quitclaim deed is worthless.  For example, you can’t quitclaim your interest in City Hall to your neighbor because you don’t actually own City Hall. 

This is where quitclaim deeds vary from warranty deeds (or grant deeds) — the types of transfers that occur when real estate is sold.  In instances of the former, the title to a home is guaranteed to be clear.

Before using a quitclaim deed on your own home, consult an estate planning attorney.  Transferring real property can ruin a will, or trigger taxes — it’s important to consult a professional for help.

Need more expert advice? Ask the team of Certified Mortgage Planning Specialists at Benchmark Mortgage.