Real Estate FAQs

What’s a house worth?

A home ultimately is worth what someone will pay for it. Everything else is an estimate of value. To determine a property’s value, most people turn to either an appraisal or a comparative market analysis.

An appraisal is a certified appraiser’s estimate of the value of a home at a given point in time. Appraisers consider square footage, construction quality, design, floor plan, neighborhood and availability of transportation, shopping and schools. Appraisers also take lot size, topography, view and landscaping into account.

A comparative market analysis is a real estate broker’s or agent’s informal estimate of a home’s market value, based on sales of comparable homes in a neighborhood. Campbell & Rosemurgy agents will give you a comparative market analysis for free.

What is the difference between market value and appraised value?

The appraised value of a house is a certified appraiser’s opinion of the worth of a home at a given point in time. Lenders require appraisals as part of the loan application process.

Market value is what price the house will bring at a given point in time. A comparative market analysis is an informal estimate of market value, based on sales of comparable properties, performed by a real estate agent or broker.

Either an appraisal or a comparative market analysis is the most accurate way to determine what your home is worth.

What is the difference between list price, sales price and appraised value?

The list price is a seller’s advertised price, a figure that usually is only a rough estimate of what the seller wants to get. Sellers can price high, low or close to what they hope to get. To judge whether the list price is a fair one, be sure to consult comparable sales prices in the area.

The sales price is the amount of money you as a buyer would pay for a property.

The appraised value is a certified appraiser’s estimate of the worth of a property, and is based on comparable sales, the condition of the property and numerous other factors.

How do property taxes work?

Property taxes are what most homeowners in the United States pay for the privilege of owning a piece of real estate, on average 1.5-2 percent of the property’s current market value. These annual local assessments by county or local authorities help pay for public services and are calculated using a variety of formulas.

Are property taxes deductible?

Property taxes on all real estate, including those levied by state and local governments and school districts, are fully deductible against current income taxes

For Buyers

What is the first step to buying a home?

Finding out what you can afford is one of the fist steps, which can be done by pre-qualifying for a home loan. This step will help you narrow your search for both a neighborhood and particular houses. A pre-qualification is a simple calculation that considers several factors, but primarily your income. There are no guarantees with a prequalificaiton, but it will be expected of you when you make an offer on a home.

Are foreclosures an option?

A foreclosure property is a home that has been repossessed by the lender because the owners failed to pay the mortgage. Thousands of homes end up in foreclosure every year. Economic conditions affect the number of foreclosures, too. Many people lose their homes due to job loss, credit problems or unexpected expenses.

It is wise to be cautious when considering a foreclosure. Many experts, in fact, advise inexperienced buyers to hire an expert to take them through the process. It is important to have the house thoroughly inspected and to be sure that any liens, undisclosed mortgages or court judgments are cleared or at least disclosed.

What types of foreclosure are there?

Judicial foreclosure action is a proceeding in which a mortgagee, a trustee or another lienholder on the property requests a court-supervised sale of the property to cover the unpaid balance of a delinquent debt.

Nonjudicial foreclosure is the process of selling real property under a power of sale in a mortgage or deed of trust that is in default. In such a foreclosure, however, the lender is unable to obtain a deficiency judgment, which makes some title insurance companies reluctant to issue a policy.

What can I afford?

Know what you can afford is the first rule of home buying, and that depends on how much income and how much debt you have. In general, lenders don’t want borrowers to spend more than 28 percent of their gross income per month on a mortgage payment or more than 36 percent on debts.

It pays to check with several lenders before you start searching for a home. Most will be happy to roughly calculate what you can afford and prequalify you for a loan.

The price you can afford to pay for a home will depend on six factors:

1. Gross income

2. The amount of cash you have available for the down payment, closing costs and cash reserves required by the lender

3. Your outstanding debts

4. Your credit history

5. The type of mortgage you select

6. Current interest rates

Another number lenders use to evaluate how much you can afford is the housing expense-to-income ratio. It is determined by calculating your projected monthly housing expense, which consists of the principal and interest payment on your new home loan, property taxes and hazard insurance (or PITI as it is known). If you have to pay monthly homeowners association dues and/or private mortgage insurance, this also will be added to your PITI.

This ratio should fall between 28 to 33 percent, although some lenders will go higher under certain circumstances. Your total debt-to-income ratio should be in the 34 to 38 percent range.

For Sellers

How do I prepare the house for sale?

First and foremost, put it in the best condition possible, especially if you are in a market with few buyers and lots of homes for sale. That means taking care of any major repairs that could deter a buyer (such as replacing any broken windows or replacing a leaky roof) if you can afford it.

Next, work on your home’s curb appeal. Make sure your landscape is pristine. Mow the grass, clean up any debris and weed the garden beds. Plant a few annual flowers near the entrance or in pots to be placed by the door.

Other quick fixes that don’t cost a lot of money but can help you get top dollar for your home:

• Clean the windows and make sure the paint is not chipped or flaking.

• Be sure that the doorbell works.

• Clean and freshen up rooms, furnishings, floors, walls and ceilings. Make sure that bathrooms and kitchens are spotless.

• Organize closets.

• Make sure the basic appliances and fixtures work. Replace leaky faucets and frayed cords.

• Eliminate the source of any bad smells, such as the kitty box. Use air freshener or bake a batch of cookies before your open house to ensure that the house smells inviting.

• Invest in a couple of vases of fresh flowers to place around the house and next to any information about the house you have prepared for buyers.

What are the two most important factors when selling a home?

Price and condition are the two most important factors in selling a home, even in a down market. The first step is to price your home correctly. Use comparative sales information from your Campbell & Rosemurgy agent to objectively evaluate your home’s worth.

Second, go through the house and repair any obvious cosmetic defects that could deter a buyer.

In a down market, you may have to consider lowering your price and/or making a major repair, such as replacing the roof, in order to lure a buyer.

Also, make sure that your home is getting the exposure it deserves through open houses, broker open houses, advertising, good signage and a listing on the local multiple listing service or online listings provider.

How long do bankruptcies and foreclosures stay on a credit report?

Bankruptcies and foreclosures can remain on a credit report for seven to 10 years.

Some lenders will consider an borrower earlier if they have reestablished good credit. The circumstances surrounding the bankruptcy can also influence a lender’s decision.

For example, if you went through a bankruptcy because your employer had financial difficulties, a lender may be more sympathetic. If, however, you went through bankruptcy because you overextended personal credit lines and lived beyond your means, the lender probably will be less inclined to be flexible.

How does someone sell a slow mover?

If you are selling in a slow market, your first step would be to lower your price. Also, go through the house and see if there are cosmetic defects that you missed and can be repaired.

Finally, if you who have no equity in the house, and are forced to sell because of a divorce or financial considerations, you could discuss a short sale or a deed-in-lieu-of- foreclosure with your lender.

A short sale is when the seller finds a buyer for a price that is below the mortgage amount and negotiates the difference with the lender.

In a deed-in-lieu-of-foreclosure situation, the lender agrees to take the house back without instituting foreclosure proceedings. The latter are radical options.

Your simplest, and in many cases most effective, option is to lower the price.

Can a home seller sell a home for less than its mortgage?

Yes, in some case you can sell your home for less than what you still owe on the mortgage. But it is complicated and depends on the lender. This situation is known as a “short sale.”

Sometimes a lender will be willing to split the difference between the sale price and loan amount, which still must be paid.

A short sale may be more complicated if the loan has been sold to the secondary market because then the lender will have to get permission from Freddie Mac, the two major secondary-market players.

If the loan was a low down payment mortgage with private mortgage insurance, then the lender also must involve the mortgage insurance company that insured the low-down loan.

What is seller financing?

Seller financing is when a seller helps to finance a real estate transaction by taking back a second note or even financing the entire purchase if the seller owns the home free and clear.

Usually sellers do this when a buyer has difficulty qualifying for a conventional loan or meeting the purchase price.

Seller financing differs from a traditional loan because the seller does not give the buyer cash to complete the purchase, as does a lender. Instead, it involves extending a credit against the purchase price of the home while the buyer executes a promissory note and trust deed in the seller’s favor. These special circumstances must be acceptable to the lender who makes the first mortgage on the property.

The necessary paperwork is prepared by the title or escrow company after the terms are worked out between the buyer and seller.

If you are a seller considering such an arrangement, it is critical to thoroughly evaluate the creditworthiness of the buyer first. Fear of default makes many sellers reluctant to take back a second. But seller financing can bring a higher price plus complete the sale sooner in some situations.

What contingencies should be put in an offer?

Most offers include two standard contingencies: a financing contingency, which makes the sale dependent on the buyers’ ability to obtain a loan commitment from a lender, and an inspection contingency, which allows buyers to have professionals inspect the property to their satisfaction.

A buyer could forfeit his or her deposit under certain circumstances, such as backing out of the deal for a reason not stipulated in the contract.

The purchase contract must include the seller’s responsibilities, such things as passing clear title, maintaining the property in its present condition until closing and making any agreed-upon repairs to the property.