You are so excited because someone finally made an offer on your home and you ACCEPTED! You have been working so hard to sell your place and now, since the contract has been fully executed, you can sit back and relax while the Buyer does their thing. WRONG. You can’t just sit back and relax, just yet. You still have an appraisal to worry about. In most cases, Buyers won’t come to you with a wad of cash and say, “I want to buy your house.” A majority of the residential real estate transactions are financed and the bank, well, they are the Buyer’s partner and as such, they want to make sure they get their full value. So what about that appraisal?

Lenders will often require the use of their own, FHA-approved appraiser. What does that mean for the Seller? Basically this….you have absolutely no say in who determines the financial value of your home. The home you have nurtured, put your entire life savings into and built relationships in.
In this article, I include things that Sellers can do to help them get through this process.

If you think the appraiser can determine the value or worth of your home upon entry, think again. They don’t. Once you have a clear understanding of the appraisal process, you can understand the home’s value determination.
Initially, the appraiser will compile a list of comparable listings in the area where your property is located, what we lovingly refer to in the biz as “comps”. Comps can be someone’s dream come true or possibly a nightmare, depending on how they are compiled. You would hope that the homes being used in the comps are homes similar in location, square footage and style that have been sold within the past few months. After pulling the comps, the appraiser will then do a physical inspection of the home to determine its quality and condition. In an effort to make the most accurate assessment, the appraiser will also take in to account other factors that may affect the home’s value. Keep in mind, this won’t be immediate and could take a few days to complete.

If there was ever a reason to clean your house, this is a perfect one. The appraiser is not judging you on cleanliness, but clear away the clutter, clean the floor and do what you can to make the home presentable. More than likely, your home won’t be devalued due to a mess, but staging (organizing and decluttering) may help. Be sure the occupants of the home are prepared when the appraiser shows up. This includes the reclusive teen’s room.

Beat the appraiser to the punch and send any information you have about the house to the appraiser BEFORE they arrive. The lender or broker may ask for this information, but be prepared.
Prepare a list of major improvements (with their permits attached), detailed information about the condition and age of the roof, plumbing, air conditioning and major appliances. Appraisers do not appreciate surprises and if they see an improvement that hasn’t been supported by documentation, they will get concerned and the values will not be accurate. Full disclosure will serve you well.

Sure, your recently renovated kitchen is fabulous, but don’t take it personally when it doesn’t proportionally increase the home’s market value.
Folks in the biz will tell you that only a fraction of what you may have invested or spent may add value to the house. So, if you are looking for a large ROI from your improvements, don’t be disappointed when the ROI is not as large as you initially expected. This expectation applies doubly for a new pool. Depending on what kind of climate you live in, the pool addition may or may not bring as much value as you had hoped for.

Before even listing a property, be sure that you and your real estate agent take a realistic snapshot of what the home actually offers. What are you including in the square footage total. Is it really there or are you just making it up? If you hope that no one will notice that the roof is not actually new, think again. Even if the appraiser doesn’t notice, a subsequent inspection will. Be real about numbers. Puffery will get you nowhere.
In South Florida, it’s even more difficult to fudge the numbers because they exist online at the Property Appraiser’s website and they are typically accurate. If you think nobody will notice, think again. And the appraiser, well he or she will definitely notice and it won’t help you.

At Khani & Auerbach, we are doing our very best to remain at the forefront of the real estate market. We will continue to educate ourselves, our clients and real estate professionals. If you have any questions, please feel free to ask us!

CFPB releases ‘Know Before You Owe’ Shopping Tool Kit

real estate, real estate closings, real estate transactionsThe Consumer Financial Protection Bureaus a/k/a the “CFPB” intends to roll out new guidelines and requirements for consumer home loans that will be in effect beginning August 1st of this year. They have kicked off their “Know Before You Owe” campaign by releasing a new toolkit to guide consumers through the process of shopping for a mortgage and buying a home.

“The new mortgage disclosure forms coming in August will help consumers comparison shop for mortgages and avoid surprises at the closing table. We are releasing this toolkit well in advance of the effective date to help the mortgage industry come into compliance with the new rules,” said CFPB Director Richard Cordray.

The toolkit, which can be found here, provides a step-by-step guide to help consumers understand the nature and costs of real estate settlement services, define what “affordable” really means and search for their best mortgage.

The Shopping Tool Kit also features interactive worksheets and checklists, conversation starters for discussions between consumers and lenders, and research tips to help consumers seek out and find important information.

Before the CFPB rule, the law required lenders to deliver two different disclosures to borrowers within three business days of receiving their applications. However, new guidance from the CFPB will now severely restrict how much a final mortgage deal can vary from from the original loan estimate.

In an effort to ensure compliance, the ‘Know Before You Owe’ loan documentation will consist of two new forms: the Loan Estimate and the Closing Disclosure to ensure compliance.

“Taking out a mortgage is one of the biggest financial decisions a consumer will ever make. Our new ‘Know Before You Owe’ mortgage forms improve consumer understanding, aid comparison shopping, and help prevent closing table surprises for consumers,” said CFPB Director Richard Cordray. The CFPB states further that the new documentation is intended to help improve consumer understanding, compare loan offers and avoid closing costs at the table.

At Khani & Auerbach, we are doing our very best to remain at the forefront of these changes.  We will continue to educate ourselves, our clients and real estate professionals that we work with in an effort to make these transitions as seamless as possible.   Click here for the downloadable .pdf file.