WHY DO I NEED A HOME INSPECTION AND A HOME APPRAISAL?

A great question asked by first-time home buyers.  "Why do I need both; are they not the same?" 

Do not let the word HOME fool you into thinking they are.  Although they both have one thing in common - HOME - they are different as cats and dogs.

Home Appraisal - By definition, "An appraisal is a licensed appraiser's opinion of a home's market value based on comparable recent sales of homes in the neighborhood. Appraisals are usually ordered on behalf of a buyer's lender to protect the interests of the lender. The lender's underwriters will compare the appraisal price to the final purchase price of the home to ensure the buyer is not borrowing more than the house is worth." (Redfin)

As you can see a home appraisal deals with the value of your prospective home as it relates to recent sales within the similar locale.

Home Inspection - By definition, "A Home Inspection is a non-invasive visual examination of a residential dwelling, performed for a fee, which is designed to identify observed material defects within specific components of said dwelling. Components may include any combination of mechanical, structural, electrical, plumbing, or other essential systems or portions of the home, as identified and agreed to by the Client and Inspector, prior to or during the inspection process." (Paul Willig, Member of The National Association of Certified Home Inspectors)

The emphasis of the home inspection is the condition of the house and notes items that may affect the asking price of the house. 

Both the Home Inspection and the Home Appraisal serve the potential home buyer well enabling them to determine if this house is worth their investment.

BUYING IN A SELLER'S MARKET - MISTAKES TO AVOID!

As 2021 begins, the U.S. housing market is a seller's market.  What does that mean for buyers of all age groups as they scan the market for a new home? The National Association of Realtors reports that at present the available inventory of homes is 2.1 months nationally.  In some areas, like Austin, Texas, the number is 0.7 months.  Available homes are being gobbled up in short order as buyers significantly outnumber sellers and are willing to pay asking price. 

Here are a few tips on how to be better positioned when entering the housing market pool.

1. Be prepared to make you best offer. With lower inventory buyers do not have the luxury of waiting out a seller by making a low-ball offer.  There are several eager buyers swarming around each seller who are willing to pay make a better offer today while you sit on the sidelines.

2. Analysis Paralysis.  Spending too much time crunching numbers and weighing the "+ and -" of a property may be the very thing to cause you to lose your ideal property.  Other buyers are ready to strike while the iron is hot so do not analyze a deal too long.

3. Working with your agent.  Your agent is on your side and is your advocate with the seller.  Keep your agent abreast of your housing needs, your financial position, and the timetable for your move.  Do not wade in the water if you do not plan to swim.

4. Get preapproval.  This is "numero uno" on your must do list before you even see talk with an agent or see a house.  Knowing how much you home you can afford cuts through tons of listings as you narrow your search for that ideal house.

5. Bidding war. Some markets may be so competitive that bidding wars erupt over a single property.  As a buyer you may have to up your offer to win the property.  Either you can or cannot.  Be prepared to walk away and live to search another day.

6. Learn from your mistakes. Realize that not every offer you will make on a home is a winner.  Sometimes, you will not be successful.  Learn from what did not go right and be better prepared as you move forward.   

Housing markets are cyclical.  During one period there are more than enough houses to meet buyer's needs, while at other times houses are far and few between.  Learning and understanding the housing market will enable you navigate better.

10 QUESTIONS FOR BUYER TO ANSWER

Purchasing a new home takes forethought and planning and a degree of self-searching.  Over planning can be just as bad.  These 10 questions may provide some guidance as you navigate your new home purchasing adventure.

1. Why buy and why now?  Nationally, people move every five to eight years, some more than others, but your starting point needs to begin with WHY.  Is it a job relocation, upgrade, or downsizing, or perhaps due to a divorce or death of a spouse?  

2 Are you working with a lender?  Once you answered the WHY now you can begin to address how you will finance the move.  Talking with a lender gets you pre-approved and now you know the thresh hold of your purchasing power.  

3. How many homes have you looked at already? Whether you are out on your own looking or working with a realtor, finding the perfect home may take a little investment of time.  Weighing your options is important.

4. How do you prefer to be contacted?  Choose the means of communication you are most comfortable with and understand.  Not everyone is computer smart or has the latest cell phone. 

5. What would you do if you found the perfect home tomorrow?  Homes are being sold in a record time due to high demand and limited inventory.  Be ready to act on a listing or be prepared to enter a bidding war with other buyers. 

6. What are your three favorite neighborhoods?  Finding the perfect house in the perfect neighborhood with the perfect schools is not always possible.  Do you have another area that you would consider buying into?  

7.What is your favorite room in the house? For some it may be the bedroom, kitchen, or the outdoor space.  Which every it is for you could be the selling point to sway your purchase decision.

8. How important is the outdoor/garage area?  Finding a home for your gardening equipment or woodworking tools may be just as important as the size of your kitchen.  If these spaces are important to you, they will be items you want to seriously consider in your house search.

9. How long do you think you will live in the house?  Is this your "forever home" or will you be moving again in five or eight years.  Remember, buying a home is first an emotional decision than a logical one.

10. What is a deal breaker? What element of the home or the transaction would cause you to break the deal?  Discussing that point or points with your realtor will help guide them in their search for your perfect home.

Working through these 10 questions will certainly help in guiding your efforts to find that perfect house.  

BUILDING HOME EQUITY

 

You have just made the most significant financial investment of your life and the benefits of that decision, although unseen, will prove beneficial over the years. 

WHAT IS EQUITY?

In layperson terms it is the amount of your home that you own after accounting for debt. In calculating that value, subtract your loan balance from the market value of your home.

Example:  Your home is worth $400,000.  You owe $250,000 on your mortgage.  $4000,000 - $250,000 = $150,000 of equity in your home.

One of the key things to remember is that equity is an asset and with that asset you can do several things

 1. Receive cash after you sell the home and pay all related costs

 2. Borrow against it with a home equity loan or home equity line of credit (HELOC).

 3. Use is as part or all your down payment for your next home.

That is nice, but how do I build home equity?  There are two primary ways to build equity in your home.

 1. The property value increases through, 1) rising prices in your market value; 2) home improvements; and 3) routine maintenance upkeep.   

 2. The amount of debt decreases through, 1) regular monthly payments; 2) shorter loan terms; 3) make extra payment and 4) leaving the equity untouched.

Remember: The process is slow, and only a portion of your monthly payment goes to equity.  It may take several years to build significant equity, so it is best to borrow against it only when you really need it.

HOW TO PRICE YOUR HOME FOR SALE

 Arriving at the correct price for selling your home is the most important factor in whether your home sells quickly or languishes on the market.  Overpricing tends to rob the home of its freshness after the first two or three weeks of showings, thereby reducing demand and interest after 21 days.

You will want to obtain a Comparative Market Analysis (CMA), so you are as close as possible to your home's value.  No two real estate agents price property the same way.  Most agents will prepare a CMA for you, but there is nothing from stopping you from doing one.

Here are a few things to know in preparing your own CMA.

1. Look for similar homes that have been listed in the same neighborhood as yours over the last six months.  Homes should be limited to those within a 1/4-mile to 1/2-mile radius unless you live in a rural area.

2. Pay attention to neighborhood boundaries.  Identical homes across the street from each other can vary as much as $100,000 due to physical barriers, major streets, freeways, or railroads.  Also consider the age of homes you base your comparation.  A home built in the 1960s will be different from one built in the 1990s.

3. Checkout sold comparisons.  Compare the original price of the homes to the sale price to determine any reduction in price.  Most property assessors' office will provide a list of sales.

4. Look for Withdrawn and Expired listings, Pending Sales and Active listings.  Look for patterns as to why a home did not sell - perhaps the house was overpriced, not marketed properly or appearance of the property.

5. Compare square footage. Average square foot cost does not mean that you can simply multiply your square footage by that number, not unless you have the exact same square footage.  Remember: The price per square foot rises as the size decreases and it decreases as the size increases.  Larger homes have a similar square footage cost and smaller homes have a larger square footage cost.

6. Market-dependent pricing.  Once you have collected all your data, it is time to analyze the data base on the market condition - a seller's market, buyer's market, or neutral market.  Your sale price must allow for wiggle room in a buyer's market.  The opposite is true in a seller's market where you might want to add 10% more to the last comparable sale.  You may want to set your price at the last comparable in a neutral market, then adjust it for the market trend.

By spending a little extra time to research your current market condition and create your own comparative market analysis you can shorten the time your property is on the market and realize a significant profit on the sale.