Category: Home Appraisal

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Why Home Prices Keep Going Up

Why Home Prices Keep Going Up

If you’ve ever dreamed of buying your own place, or selling your current house to upgrade, you’re no stranger to the rollercoaster of emotions changing home prices can stir up. It’s a tale of financial goals, doubts, and a dash of anxiety that many have been through.

But if you put off moving because you’re worried home prices might drop, make no mistake, they’re not going down. In fact, it’s just the opposite. National data from several sources says they’ve been going up consistently this year (see graph below):

Here’s what this graph shows. In the first half of 2022, home prices rose significantly (the green bars on the left side of the graphs above). Those increases were dramatic and unsustainable.

So, in the second half of the year, prices went through a correction and started dipping a bit (shown in red). But those slight declines were shallow and short-lived. Still, the media really focused on those drops in their headlines – and that created a lot of fear and uncertainty among consumers.

But here’s what hasn’t been covered fully. So far in 2023, prices are going up once more, but this time at a more normal pace (the green bars on the right side of the graphs above). And after price gains that were too high and then the corrections that followed in 2022, the fact that all three reports show more normal or typical price appreciation this year is good news for the housing market.

Orphe Divounguy, Senior Economist at Zillow, explains changing home prices over the past 12 months this way:

“The U.S. housing market has surged over the past year after a temporary hiccup from July 2022-January 2023. . . . That downturn has proven to be short lived as housing has rebounded impressively so far in 2023. . .”

Looking ahead, home price appreciation typically starts to ease up this time of year. As that happens, there’s some risk the media will confuse slowing price growth (deceleration of appreciation) with home prices falling (depreciation). Don’t be fooled. Slower price growth is still growth.

Why Are Home Prices Increasing Now?

One reason why home prices are going back up is because there still aren’t enough homes for sale for all the people who want to buy them.

Even though higher mortgage rates cause buyer demand to moderate, they also cause the supply of available homes to go down. That’s because of the mortgage rate lock-in effect. When rates rise, some homeowners are reluctant to sell and lose their current low mortgage rate just to take on a higher one for their next home.

So, with higher mortgage rates impacting both buyers and sellers, the supply and demand equation of the housing market has been affected. But since there are still more people who want to purchase homes than there are homes available to buy, prices continue to rise. As Freddie Mac states:

“While rising interest rates have reduced affordability—and therefore demand—they have also reduced supply through the mortgage rate lock-in effect. Overall, it appears the reduction in supply has outweighed the decrease in demand, thus house prices have started to increase . . .”

Here’s How This Impacts You

  • Buyers: If you’ve been waiting to buy a home because you were afraid its value might drop, knowing that home prices have gone back up should make you feel better. Buying a home gives you a chance to own something that usually becomes more valuable over time.
  • Sellers: If you’ve been holding off on selling your house because you were worried about how changing home prices would impact its value, it could be a smart move to work with a real estate agent and put your house on the market. You don’t have to wait any longer because the most recent data indicates home prices have turned in your favor.

Bottom Line

If you put off moving because you were worried that home prices might go down, data shows they’re increasing across the country. Work with a local real estate agent to understand how home prices are changing in your local area.

Source:  keepingcurrentmatters.com ~ Image: keepingcurrentmatters.com

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What Is a Home Appraisal and Who Pays for It?

What Is a Home Appraisal and Who Pays for It?

Get to know the basics on what a home appraisal is, when it takes place and how it factors into your ability to buy a home.

For homebuyers financing their purchase with a mortgage, a home appraisal is often a required step of the process in order to get an approved loan and close on the deal.

A home appraisal can be a valuable step outside of a pending real estate deal as well, either for a homeowner looking to determine the right asking price to put it on the market, or when looking to estimate the monetary value of a deceased loved one’s estate.

The best way to use an appraisal to your advantage is to understand what it is and how it’s used by others in the homebuying or selling process. Here’s what you need to know:

    • What is a home appraisal?
    • What does a home appraiser look for?
    • How much does a home appraisal cost?
    • Who pays for a home appraisal?
    • Who pays for a home appraisal if a deal falls through?
    • How to find an appraiser.

A home appraisal is an estimate of the market value of a residential property at a specific point in time, completed by a professional.

Once a home is under contract between the buyer and seller, a lender will typically require an appraisal during the underwriting process to determine whether the agreed-upon sale price of the home reflects the market value of the property.

“The appraisal is really used for the lender to determine the value of the collateral,” says Brian Smith, regional manager, mortgage adviser and executive coach for Union Home Mortgage in Sandusky, Ohio. A lender won’t want to approve a mortgage for $350,000 if the home is only appraised for $300,000, for example.

What Happens if a House Doesn’t Appraise for its Sales Price?

If an appraiser reports the valuation as lower than the agreed-upon sale price, the lender will likely be unwilling to approve a mortgage above the appraised price. If a home does not appraise for its sales price, you have what is known as an appraisal gap. An appraisal gap is the difference between the sticker price and the appraisal – in Smith’s example, that gap between $300,000 and $350,000 would be $50,000.

To fix the appraisal gap, the buyer can come up with the cash to make the difference, or ask the seller to agree to the lower price – if the seller won’t budge on the price and the buyer doesn’t have enough cash, the deal falls apart.

Who Hires the Appraiser?

While there are many situations when an individual can hire a home appraiser for a private appraisal, unrelated to a loan application, lenders often have a list or network of approved local appraisers they will accept valuations from, depending on the location of the property in question.

“What you want when you get a home appraisal is you want a very unbiased opinion,” says Rodman Schley, a licensed appraiser in Denver and former national president of the Appraisal Institute, an international association for professional appraisers. Schley explains that lenders will often have an employee to liaise between the appraiser and loan underwriter to avoid any possible influence on the valuation.

A home appraisal can involve a few factors, including sales comparisons of similar properties in the area, how condition or improvements can add to or detract from value as it compares to those other properties and the potential income for a piece of real estate, if it’s intended to be used as a rental or other type of income-producing property.

An appraiser will take the details of the home, including “the age of the house, size of the entire property, number of bedrooms, number of bathrooms, how big the yard is,” Smith says. “They’re looking for homes that are recently sold that are closest in proximity to that house.”

Schley notes an appraiser is typically looking for three to four deals to compare. The closer in location and more recent the comparable sales are, the better. But when a property is unique for the area or few homes have sold recently, “you might have to expand your location parameters to find a similar home throughout a wider area,” Schley says.

When possible, an appraiser will also visit the property to examine the home’s condition and see any features that would affect the appraised value. “The preference is always to go in and see the improvements,” Schley says.

Appraisal Requirements for Government-Backed Mortgages

If you’re not getting a conventional mortgage and are instead opting for something like a VA or FHA loan, for example, the appraisal has additional steps the government agencies require.

The VA, for example, has minimum property requirements, including working electricity, functional heat and air, an adequate roof and no lead paint or evidence of mold, termites or dry rot, among others. While a VA appraisal may involve more in-depth information about the condition of the property than an appraisal for a conventional loan, “it’s not as granular as a home inspection,” says Chris Birk, vice president of mortgage insight and director of education for lender Veterans United and author of “The Book on VA Loans.”

The average single-family home appraisal costs $353, according to HomeAdvisor. Costs can vary depending on the individual appraisal company, location of the property, size and condition of the home and required details either by you or the lender. Home services information company Fixr calculates a similar national average price range for a home appraisal, $375-$450, though it notes larger houses with lots of updates can drive the total price up as high as $1,200.

Traditionally, the buyer pays for a home appraisal because it is required by a lender. When a private appraisal is ordered by a homeowner or executor of an estate, the individual who orders the appraisal will pay for it.

While an appraisal fee may be included in a list of closing costs, or one-time fees due at closing, it’s likely the appraisal fee will be due ahead of closing. “(The lender) might include the appraisal fee upfront, because that is a cost incurred prior to closing,” Schley says.

If your real estate deal falls through after an appraisal has taken place, consider it a sunk cost. “The appraiser completed a service, he got paid for it – unfortunately the money is spent,” Smith says.

In the case of a VA appraisal where the minimum property requirements reveal issues like an HVAC system that needs repair or a crawl space that needs venting, the VA requires the issue be dealt with in order for the loan to be approved. Often, that means the seller is responsible for covering the repairs, “but the veteran themselves can look at paying for repairs if that’s what it takes to keep the deal going,” Birk says.

When your lender requires an appraisal, the appraiser will be contacted by the lender directly, and in the case of specialty appraisal like that for the VA, the government agency handles initiating the appraisal. But if you’re looking to get a private appraisal done for another reason, you’ll want to find one local to you.

A simple online search for home appraisers in your area may help you find local companies. The Appraisal Institute also has a search feature to help you find licensed appraisers local to you that are a part of the organization. Regardless of where you’re searching, Schley recommends looking for an appraiser with an SRA designation, which means he or she is trained in appraising residential properties.

Source: realestate.usnews.com ~ By: Devon Thorsby ~ Image: Canva Pro

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The Guide to Understanding Your Home Value

Understanding Home Value

Here’s a look at the process of calculating the value of your home and what it means for your home’s sale price.

You know how much you paid for your home, and you likely factor the work you’ve done and the memories you’ve made there into your idea of what it’s worth. But while your home may be your castle, your personal feelings toward the property and even how much you paid for it a few years ago play no part in the value of your home today.

In short, a house’s value is based on the amount the property would likely sell for if it went on the market.

Why Should You Know the Value of Your Home?

You should have a grasp of the value of your home in a variety of situations: if you’re getting ready to sell your house, looking to refinance your mortgage or buying a new homeowners insurance policy, for example.

For a better understanding of what your home’s value means, how it may change over time and what the impact may be if the housing market shifts significantly in your neighborhood, city or even the whole country, here’s our breakdown.

What Is the Value of My Home?

If your property value is based on what a buyer is willing to pay for it, all you have to do is find someone willing to pay as much as you think it’s worth, right?

Determining a home’s value is a bit more complicated. Keep in mind that buyers place no value on the good times you’ve spent there and might not consider your updated bathroom or in-ground swimming pool to be worth the same amount you paid for the upgrades.

And even if you find a buyer willing to pay $450,000 for your home, the value of your house isn’t necessarily $450,000. Ultimately, the financial backing in a deal determines the property’s value, and it’s most often a mortgage lender making the call.

Property valuation primarily takes into account recent sales of comparable properties in the area. Key identifying factors are the same square footage, number of bedrooms and lot size, among other details. Professionals who determine property values for a living compare all the details that make your house similar and different from those recent sales, and then calculate the value.

But when your property is unique – maybe it’s a triangular lot or a four-bedroom house in a neighborhood full of condos – determining the value can be more difficult.

The individual, group or tool appraising the property may also influence the outcome of the appraisal since they all appraise properties differently for a variety of reasons. Here’s a look at common appraisal scenarios.

Lender Appraiser

In the case of a property sale, the appraisal often happens once the property has gone under contract. The lender will hire an appraiser to complete a report on the property, getting all the details on the house and its history, as well as the details of similar real estate deals that have closed in the last six months or so.

If the appraiser comes back with a valuation below that $450,000 sale price you’ve agreed upon, the lender will likely state that it is willing to lend an amount equal to the property’s value as determined by the appraisal, but not more. If the appraisal comes in at $425,000, the buyer has the option to come up with the $25,000 difference or try to negotiate the price down.

Sellers are often open to negotiation at this point, knowing that a low appraisal likely means the house won’t sell for a higher price once it’s back on the market, though excessive interest in a property may be able to sway an appraiser.

Lindsay Katz, a real estate agent with Redfin in the Los Angeles area, says low inventory and high demand has made the Los Angeles market extremely competitive. In cases of multiple offers on a home that drive the price above its initial asking point, a higher value becomes easier to prove to an appraiser that the market value of the home has risen. “I don’t know how you can’t justify that price when 13 people agree,” Katz says.

Appraiser You’ve Hired

If you haven’t yet put your house on the market and are struggling to determine price, hiring an appraiser can help you get a realistic estimate.

Especially if you’re struggling to agree with your real estate agent on what the most likely sale price will be, bringing in a third party could provide additional context. The cost of a formal appraisal is about $350 on average, according to home services company Angi.

Online Home Value Estimator

Many real estate information sites offer more informal home appraisal tools that will give you a ballpark value for your home. You may have previously taken a look at U.S. News’ own home value estimator, Zillow’s Zestimate, realtor.com’s RealEstimate tool or explored the Federal Housing Finance Agency’s House Price Calculator.

It’s important to keep in mind that an online home value estimator is simply pulling from available information online and may not have all the facts that a professional appraiser would utilize in a valuation report. The online algorithms can catch many details, but they don’t necessarily have the ability to account for more localized factors, like the impact of severe storm damage or trends taking place in your city.

“There’s a lot of information out there,” says Danielle Hale, chief economist for realtor.com. “They don’t always agree, depending on how unique your home is or if there aren’t a lot of sales where your home is.”

Tax Assessor

Your home’s value also determines annual property taxes. In addition to examining the sale prices of similar houses that sold recently, a tax assessor looks at what the cost would be to build a similar house, whether you’ve done any recent improvements, if you earn income from the property and the cost of upkeep.

A property’s assessed value for tax purposes is often less than the appraised value – and that’s a good thing. The property taxes you pay annually are based on the assessed value, so the higher it is, the more you owe.

How Do Market Values Apply to My Home?

There are multiple ways to find out the current value of your house, but individual appraisals and assessments aren’t the only cases where you’ll hear about home values. In annual, quarterly or even monthly reports, home values are often discussed along with the rising cost of homeownership on a local, state and national level.

Depending on the source of information, reported values may be based on online estimator tools, listing prices for houses currently on the market or property value information from local assessors’ offices. These numbers are useful to discuss trends on a large scale, but they don’t always reflect the actual sale prices of real estate deals that closed in those time periods.

The details you get about rising values can be useful as you prepare to put your home on the market, buy your first house or learn more about economic forecasts, but don’t take national trends as indicators of what’s happening in your area.

The importance of trends in home values depends on the stage of homeownership you’re in or moving toward. Here’s what you should know:

For Buyers

As you’re preparing to start house hunting, keeping up on real estate market trends can be an excellent way to know what you’ll be facing. If values are climbing every month and year-over-year comparisons show fast growth – for example, 5% or more – those are signs that a lot of buyers are looking for houses at the same time as you. In mid-2021, home values were climbing at an incredibly fast pace, and the median sale price in the U.S. was seeing more than 20% year-over-year growth. Don’t expect this to repeat soon.

For Investors

Whether you’re looking to invest in a property for rental income or buy a fixer-upper for a quick turnaround, current market trends may influence your choice of purchase. In Los Angeles and many other parts of the country, more time spent at home during the pandemic caused many buyers to shift their focus when looking for a place to live. Instead of prioritizing proximity to shopping and nightlife, for example, “people renting or living in a condo are thinking they’d like to have a backyard, perhaps a pool,” Katz says.

But before you invest in a sprawling property with all the outdoor amenities, learn more about the market and its previous trends. You’ll also want to crunch the numbers to see if rent will be able to cover the mortgage and upkeep on an income property.

For Homeowners and Sellers

If you’re preparing your home for sale or just looking to learn more about your net worth, keep in mind that wider home value trends and reports have little impact on you.

Instead, keep a close eye on local reports; those that provide monthly or quarterly trends on your specific ZIP code can be a better reflection of what’s happening to your property value, Hale says.

Especially if you’re considering selling your home, a knowledgeable real estate agent could be your best source in understanding your property value. “You would want to reach out and talk to an agent and get a local expert’s assessment,” Hale says.

On the other hand, “if you’re not selling, a (positive) change in value still might help you feel wealthier,” says Hale, noting that a current valuation of your home may help you make future financial decisions.

How Can I Increase My Home’s Value?

Whether you’re planning to sell now or in a couple of years, or you’re simply looking to make your home as valuable as possible in the long term, you can potentially help increase its value with regular maintenance, renovations or even additions that could appeal to homebuyers.

Short Term

Many homeowners are motivated to add value to a property when they’re preparing to sell. It’s not impossible to add a couple of thousand dollars to the price tag with some simple remodeling projects that can make your home look fresh and appeal to buyers. Here are a few:

    • Fresh paint in neutral colors.
    • New landscaping.
    • Smart thermostat.
    • New or refinished cabinets.
    • New or well-maintained roof.
    • New or well-maintained furnace or air conditioning.

Maximizing value isn’t just about cosmetic fixes – it’s also about focusing on key areas like the roof and HVAC systems that would come up in a home inspection. Issues like leftover water damage on the ceiling from an old roof leak or a cracked window will show up in the home inspector’s report. If anything concerns the buyer too much, you may run the risk of the deal falling through.

Midterm

If you’re looking to make changes to your home so it’s on par with a different caliber of properties in your neighborhood, consider these larger construction projects:

    • Primary suite addition.
    • Guest bedroom add-on.
    • Finished basement.
    • Garage construction.
    • Complete kitchen renovation.
    • Bathroom addition.

These more extensive changes can be an excellent way to take your home to the next level, but only if other houses like this exist in the area. Adding a master suite and new garage to a neighborhood full of two-bedroom bungalows with street parking won’t make the property appraise much higher than the others. That’s because your house may no longer appeal to the typical buyer in that neighborhood.

Long Term

If you’re looking to increase your home’s value for the sake of your overall wealth, the best thing you can do is continue to pay off your mortgage and gain equity in the property. With proper upkeep and work to keep the home up to date, your home value will, on the whole, naturally increase over time.

Source: realestate.usnews.com  ~ By Devon Thorsby ~ Image: Canva Pro

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