3 Stumbling Blocks of Closing - Part 2

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Appraisals and Inspections

While typically these steps affect the buyers’ side of the deal slightly more, a low appraisal for a seller can be a nightmare. Appraisals and inspections function similarly but are used for different purposes.

What is an appraisal?

An appraisal is typically required by the lending bank to protect themselves by not lending more than the home is worth. They usually hire the person who does the appraisal and could make or break the deal. A home appraisal can cost anywhere from $300-$500 and is typically paid by the buyer upfront, however the cost is typically negotiated in closing, which the seller may give credit towards.

The appraiser visually inspects the home and assesses it’s value. They are looking at location, structural condition, renovations, and recent sales in the area of comparable homes.* Square footage and the number of rooms are typically considered in home comparisons. 

If the home is appraised at a higher value than the sale price, that is certainly a boon for the buyer and automatic equity upon purchase. However, if the appraisal comes in lower, that could throw a monkey wrench in the deal. That means the bank won’t be willing to lend you over the valued amount, forcing the buyer to cover the remaining cost. This can happen particularly in “hot” housing markets where buyers are compelled to make bids against steep competition. There is some recourse in this instance other than walking away. 

A skewed appraisal does not only affect the buyer but the seller as well. Appraisers aren’t perfect and there are many homeowners who act in order to appeal appraisals they feel are inaccurate and unfair. The lending bank typically has a process in place to challenge an appraisal, because unfortunately, this isn’t an uncommon occurrence in a continually fluctuating market. 

Image: Realtor.com

What is an inspection?

Another upfront responsibility of the buyer, while they could theoretically skip this step, it would not be smart to do so. The difference between a home appraiser and a home inspector are many. While an appraiser doesn’t work in favor of the buyer, seller, or even the bank, a home inspector is hired and working in the buyer’s best interest. A home appraiser additionally is not responsible for functions of the home and only does a visual inspection and property comparison.  An inspector will test for radon, asbestos or mold, will consider HVAC, and other home functions such as electrical systems and plumbing.** It is wise for the buyer to be present at the inspection to truly gauge the seriousness of each reported condition.

The whole point of a home inspection is to protect the buyer from purchasing a “lemon.” They may be made aware of problems or replacements to expect in the next few months or years, however, an inspection is not any type of guarantee. 

A seller may also choose to have a home inspection made before listing the property in order to be proactive in addressing any issues. Once a problem is known, it becomes “material fact” and must be disclosed to all future potential buyers.

Many times, if a seller conducts a home inspection, the buyer will want to take a peak without shelling out the cash, or conversely, if a buyer orders an appraisal, the seller wants to see how their property fares.  Either way, the other party may want to see the results of a home inspection or appraisal that they did not pay for. The appraiser or inspector is only liable to the person who paid them. This can often be a point of contention between buyers and sellers. Instead of involving yourself, be sure to work through your trusted Realtor through these potentially tricky steps! 

Resources: Realtor.com | thebalance.com

Stay tuned for Part 3 - Repair Addendum 

3 Stumbling Blocks of Closing - Part 1

Negotiating Price

You know what the home sold for down the street, but is it really a comparable property?  Negotiating price between the buyer and seller side is not the only area where expertise helps, pricing your home is something your Realtor heavily considers before listing.

What goes into your listing price?

There are actually many factors that go into pricing a home and most experts recommend not relying on just one opinion. Two of the most common methods used are Appraisals and a CMA or Comparative Market Analysis. An appraisal is an estimation by a professional, usually hired by the bank or lender to visually inspect the home to determine it’s value. A CMA is collected research of previously sold homes in your area based on location and similar properties, usually provided by your Realtor to determine a listing price. 

Other factors that determine listing price is inventory. In Richmond, inventory has remained relatively low, so it has been somewhat skewed in favor of the seller. However, even after you and your Realtor determine the listing price, a buyer has the right to negotiate.

Don’t let your emotions get involved

Buying or selling a home is an emotional time for many. Sellers may have an inflated sense of their home’s worth, it is a Realtor's job to set expectations on how to expect a listing price to be received. It is the goal of a top notch Realtor to list your home at a great market value in order to sell without lingering on the market.

Conversely, buyers could think to be a savvy shopper means submitting a low ball offer. This is definitely a risk some buyers are willing to take, but it may put a bad taste in the seller's mouth and sour the deal from the beginning. Another mistake that Realtors see is buyers not willing to make a reasonable concession for a great home just because they don’t like the color of the walls.

Money isn’t everything

Some people value time over money and vice versa. Price is not the only thing negotiable in a closing. Some buyers and sellers will make exceptions if you meet their preferred closing dates!

In any case, handling negotiations in a professional way should be done through your Realtor. While your Realtor is obligated to submit an offer, they can advise on what a fair counteroffer may be.

What neither party wants is a ’No Sale.' 

Stay tuned for Part 2 — Inspections and Appraisals!

How To Be Prepared at Closing Time

A stack of paperwork can certainly be intimidating, writer Erik J. Martin from Richmond Times-Dispatch gives advice on how to be prepared.

HOW TO BE PREPARED AT THE TABLE

Knowing what to expect from the pile of closing paperwork – and how to be prepared – can make the process go a lot smoother.

 

For starters, plan to have all of your financial ducks in a row well in advance of your closing date, said Jeremy Gulish, a realtor with Keller Williams Towne Square Realty, Morristown, N.J.

 

“With the extensive scrutiny that is now part of mortgage underwriting, I recommend that my clients have everything available to show the underwriter, short of their blood work and urinalysis,” Guilish said.

 

Depending on state and lender requirements, count on bringing the following forms and documents to the closing:

• A driver’s license or state-issued picture ID
• Recent tax returns and pay stubs
• W-2 forms
• The two most recent monthly bank statements of all of your financial accounts
• Proof of additional income (alimony, Social Security, rental income, etc.)
• The purchase and sale agreement and addenda
• A cashier’s check or other “good funds” check for the balance due (the total of which you’ll be notified a day or two prior to closing).

At closing, you’ll be represented by a closer for the lender who will ask you to sign a set of standard federally regulated documents, which you should receive three business days prior to your scheduled closing review with your attorney.

 

You’ll also receive a settlement statement showing details of all charges for completing the purchase. Items like property address, loan and payment amounts, dates and names will need to be reviewed carefully. Plan for a long sit-down; most closings last approximately one hour or longer.

 

“Be prepared to explain any major debits, credit inquiries and financial changes that are reflected in bank accounts,” Gulish said. “It’s also critical that buyers don’t have a career change or major financial debits incurred during the closing process, as their lender may not approve their loan if their financial situation changes.”

Article originally appears in RTD Homes Saturday, September 9, 2017 issue.

A PDF version of this article can be downloaded at Homefields.net

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Welcome to the Spring Real Estate Market!  We have been seeing so much exciting growth in Richmond these past few years.  Named the fourth hottest Real Estate market by Zillow last year, 2017 is already shaping up to break some records of its own!  With low inventory, new construction and home prices are on the rise.  However, mortgage rates remain low while credit availability is increasing. That means now is a great time all around to find your next dream home!  

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