Real Estate FAQs

How is a home's value determined?

You have several ways to determine the value of a home:

• An appraisal is a professional estimate of a property's market value, based on recent sales of comparable properties, location, square footage and construction quality. This service varies in cost depending on the price of the home.
• A comparative market analysis is an informal estimate of market value performed by a REALTOR® based on similar sales and property attributes. The REALTOR® will most often compare those homes currently for sale, those that have recently gone under contract and those that have sold in the past 6 months. Most agents offer free analyses in the hopes of winning your business.

Where can I get information on local housing market stats?

A REALTOR® is a good source for finding out the condition of the local housing market. A REALTOR® is in the business of knowing what is going on in the local market and can then give competent advice to buyers and sellers.

What is the difference between market value and appraised value?

Appraised value 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; fees range from $200 and up. 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 REALTOR® or broker.

What is Assessed Value?

The assessed value of a home is determined by the City or County Assessor. The Assessor is responsible for assigning values to all taxable property within a city's limits. An on-going process of gathering and reviewing information, measuring and listing new construction and investigating sales of real estate is used to provide accurate and current values. The City Assessor also processes applications for homestead credits, veterans' exemptions, industrial property tax abatements, urban revitalization exemptions, and various other programs. The City Assessor's office provides a significant amount of information regarding property values, selling prices, ownership, and physical characteristics to the public and other city and county departments.

What standards do appraisers use to estimate value?

Appraisers use several factors when estimating value including historical records, property performance, condition of the home and indices that forecast future value.

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 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 usually fully deductible against current income taxes. Check with your tax professional.

What is an escrow account?

An escrow account is a trust account established by the lender to hold money to pay for real estate taxes, and mortgage and homeowners insurance premiums as they are received each month.

Do all loans require escrow accounts?

If you are taking out a FHA or VA loan, the lender can require an escrow account to pay real estate taxes and hazard insurance premiums, as with a standard loan. Most conventional loans do not require an escrow account.

Who gets the furnishings when a home is sold?

Fixtures, any kind of personal property that is permanently attached to a house (such as drapery rods, built-in bookcases, tacked-down carpeting or a furnace), automatically stay with the house unless specified otherwise in the sales contract. But you can consider anything that is not nailed down negotiable. This most often involves appliances that are not built in (washer, dryer, refrigerator, for example), although some sellers will be interested in negotiating for other items, such as a piano.

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 appraisal 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 you choose between buying and renting?

Home ownership offers tax benefits as well as the freedom to make decisions about your home. An advantage of renting is not worrying about maintenance and other financial obligations associated with owning property. There also are a number of economic considerations. Unlike renters, home owners who secure a fixed-rate loan can lock in their monthly housing costs and make prudent investment plans knowing these expenses will not increase substantially. Home ownership is a highly leveraged investment that can yield substantial profit on a nominal front-end investment. However, such returns depend on home-price appreciation.

What do all of those real estate acronyms in the ads mean?

• ACR - acreage
• BR - bedrooms
• BA - bathrooms
• GAR - garage (garden is usually abbreviated "gard")
• DR - dining room
• LR - living room
• GR - great room
• KIT - ktichen
• FP, FRPLC, FPLC - fireplace
• GRMT KIT - gourmet kitchen

Is a low offer a good idea?

While your low offer in a normal market might be rejected immediately, in a buyer's market a motivated seller will either accept or make a counteroffer. Full-price offers or above are more likely to be accepted by the seller. But there are other considerations involved:

• Is the offer contingent upon anything, such as the sale of the buyer's current house? If so, a low offer, even a full price offer, may not be as attractive as an offer without that condition.
• Is the offer made on the house as is, or does the buyer want the seller to make some repairs or lower the price instead?
• Is the offer all cash, meaning the buyer has waived the financing contingency? If so, then an offer at less than the asking price may be more attractive to the seller than a full-price offer with a financing contingency.

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.

An inspection contingency protects you as a buyer in a purchase offer by allowing you to cancel closing on the deal if an inspector finds problems with the property.

As soon as the seller accepts a written offer, the document becomes a legally binding contract. The purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract, you can delay or possibly cancel the closing. If it's not stated in the contract, you could face losing your deposit. There also may be costly legal implications stemming from backing out of a contract.

You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas.

Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order.

What are some tips on negotiation?

• The more you know about a seller's motivation, the stronger a negotiating position you are in. For example, a seller who must move quickly due to a job transfer may be more open to a lower price. Other so-called "motivated sellers" include people going through a divorce or who have already purchased another home.
• Remember, that the listing price is what the seller would like to receive but is not necessarily what they will settle for. Before making an offer, check the recent sales prices of comparable homes in the neighborhood to see how the seller's asking price stacks up.
• Some experts discourage making deliberate low-ball offers. While such an offer can be presented, it can also sour the sale and discourage the seller from negotiating at all.

What home-buying costs are deductible?

Any points you or the seller pay for your home loan are deductible for that year. Property taxes and interest are deductible every year. While other home-buying costs (closing costs in particular) are not immediately tax-deductible, they can be figured into the adjusted cost basis of your home when you go to sell (any significant home improvements also can be calculated into your basis). These fees would include title insurance, loan-application fee, credit report, appraisal fee, service fee, settlement or closing fees, bank attorney's fee, attorney's fee, document preparation fee and recording fees.

Explain the home mortgage deduction?

The mortgage interest deduction entitles you to completely deduct the interest on your home loan for the year in which you paid it. You must itemize deductions in order to do this, which means your total deductions must exceed the IRS's standard deduction. Another point to remember is that the amount of interest on your loan goes down each year you pay on your mortgage (all standard home-loan formulas pay off interest first before significantly paying into principal). That's why paying extra on your principal every year can help you pay off your loan early.

Why buy a house?

Here are some frequently cited reasons for buying a house:

• You need a tax break. The mortgage interest deduction can make home ownership very appealing.
• You are not counting on price appreciation in the short term.
• You can afford the monthly payments.
• You plan to stay in the house long enough for the appreciation to cover your transaction costs. The costs of buying and selling a home include real estate commissions, lender fees and closing costs that can amount to more than 10 percent of the sales price.
• You prefer to be an owner rather than a renter.
• You can handle the maintenance expenses and headaches.

What is the best time to buy?

Because many buyers prefer to move in the spring or summer, the market starts to heat up as early as February. Families with children are anxious to buy so they can move during summer vacation, before the new school year begins. The market slows down in late summer before picking up again briefly in the fall. November and December have traditionally been slow months, although some astute buyers look for bargains during this period.

What is the first step to buying a home?

Finding out what you can afford is one of the first 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 lender pre-qualification notice, but it will be expected of you when you make an offer on a home.

Should I include an inspection contingency in my offer?

An "inspection contingency" protects you as a buyer in a purchase offer by allowing you to cancel closing on the deal if an inspector finds problems with the property. As soon as the seller accepts a written offer, the document becomes a legally binding contract. The purchase contract can be written to include a contingency for any repairs found to be needed or related items the seller must take care of before closing. If these are not dealt with, and you have such a clause in your contract, you can delay or possibly cancel the closing. If it's not stated in the contract, you could face losing your deposit. There also may be costly legal implications stemming from backing out of a contract. You usually will have the right to choose the inspector (and be responsible for paying for the inspections). In addition to an overall inspection for structural soundness, you can request a satisfactory pest control inspection report, roof inspection report or contingency for no potential environmental hazards such as asbestos or radon gas. Contingency clauses should satisfy the concerns of both the buyer and seller. Buyers also can protect themselves by inserting additional necessary contingencies. Indicate which items like curtains and appliances are to remain with the house. Then stipulate you have the right to personally inspect the home 24 hours before closing to make sure all is in order.

What's a home inspection?

A home inspection is when a paid professional inspector, someone who has been trained and is certified, inspects the home, searching for defects or other problems that might plague the owner later on. They usually represent the buyer and or paid by the buyer. The inspection usually takes place after a purchase contract between buyer and seller has been signed.

Do I need a home inspection?

Yes. Buying a home "as is" is a risky proposition. Major repairs on homes can amount to thousands of dollars. Plumbing, electrical and roof problems represent significant and complex systems that are expensive to fix.

How do I find a home inspector?

Your REALTOR® is one source. Inspectors are listed in the yellow pages. You can ask for referrals from friends. Ask for their credentials: are they bonded; do they carry Errors & Omissions insurance; are they ASHI certified; are they certified to test for radon and mold. The cost of a Home Inspection varies from community to community and also on the size of the home. Hunziker & Associates has a list of Home Inspectors which show those that are bonded, carry Errors & Omissions insurance, ASHI Certified, Certified for Radon testing and their approximate costs. Contact any Hunziker Realtor for this list.

What is a Pre-List Inspection?

A Pre-List Inspection is done on the behalf of the seller before the home is listed. A pre-list inspection uncovers any potential problems that might come up after a contract is signed between a Buyer and Seller. Having the inspection done before the home is listed allows for any problems that are discovered in the inspection to be addressed before the home is ever put on the market for sale.

What repairs should the seller make?

Most sellers like to make all minor repairs before going on the market in order to seek a higher sales price. In addition, nearly all purchase contracts include a buyer contingency "inspection clause," which allows a buyer to back out if numerous defects are found. Once the problems are noted, buyers can attempt to negotiate repairs or a lower price.

How much house can I afford?

Knowing 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. Amount of Available Cash
3. Outstanding Debts
4. Credit History
5. Type of Mortgage
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.

What is the standard debt-to-income ratio?

A standard ratio used by lenders limits the mortgage payment to 28 percent of the borrower's gross income and the mortgage payment, combined with all other debts, to 36 percent of the total. The fact that some loan applicants are accustomed to spending 40 percent of their monthly income on rent—and still promptly make the payment each time—has prompted some lenders to broaden their acceptable mortgage payment amount when considered as a percentage of the applicant's income. Other real estate experts tell borrowers facing rejection to compensate for negative factors by saving up a larger down payment. Mortgage loans requiring little or no outside documentation often can be obtained with down payments of 25 percent or more of the purchase price.

What are closing costs?

Closing costs are the fees for services, taxes or special interest charges that surround the purchase of a home. They include upfront loan points, title insurance, escrow or closing day charges, document fees, prepaid interest and property taxes. Unless, these charges are rolled into the loan, they must be paid when the home is closed.

Who pays the closing costs?

Closing costs are either paid by the home seller or home buyer. It often depends on local custom and what the buyer or seller negotiates.

Can you negotiate the price on new homes?

It can be difficult to negotiate the sales price with a Builder because they may claim their prices are based on fixed construction costs. But it doesn't hurt to try. If negotiating the price doesn't work, buyers commonly negotiate for better amenities (upgrade carpet, light fixtures, etc.) Experts say a builder will rarely pass up a deal over a couple hundred dollars' worth of carpeting, for example.

What are some new-home cautions?

When you buy a resale home, you can find out a lot more about the property and the neighborhood before you buy, than when you buy a new home. Land to support new-home developments usually is located on the outskirts of town. Potential buyers should ask the developer about future access to public transit, entertainment activities, shopping centers, churches and schools. Find out how far it is to the nearest library, for example. Every subdivision should have Restrictive Covenants. Be sure to ask to see these before deciding on to purchase. Restrictive convenants may include any/ all of the following: size of the house, shingle color and type, fencing, satellite dishes, and more. Local zoning ordinances also should be reviewed. A rather remote area can turn into a fast-food-chain haven within a couple of years. Try to ensure that the neighborhood, if not strictly residential, will not begin sprawling out of control.

What are considerations to buying a new home?

Builders may have a target market in mind for their new-home projects. Some may tout communities as glamorous to upscale urban professionals seeking amenities such as a golf course, hot tubs and tennis courts. Yet a playground and swimming pool might be central to a project geared toward families while the next one offers seniors a walking trail and an easy-to-care-for yard. Do not be tempted to move into a "glamorous" community where you might be able to afford the house but not the lifestyle. In addition, similar-looking new houses often come complete with restrictions imposed by the developer on house color, landscaping, renovations and anything else a homeowner possibly could do to make their house deviate from the preferred look. Marketing experts try to appeal to buyer's tastes by their promoting images for their developments. Don't buy into it. Form your own opinions and only buy a home where you feel comfortable. After all, you're going to have to live there.

Do sellers have to disclose the terms of other offers?

According to experts, sellers do not have to disclose other offers.

Should I add on or buy a bigger home?

Consider these questions before making a choice between adding on to an existing home or moving up in the market to a bigger house:

• How much money is available, either from cash reserves or through a home improvement loan, to remodel the current house?
• How much additional space is required? Would the foundation support a second floor or does the lot have room to expand on the ground level?
• What do local zoning and building ordinances permit?
• How much equity already exists in the property?
• Are there affordable properties for sale that would satisfy housing needs?

Ultimately, the decision should be based on individual needs, the extent of work involved and what will add the most value.

How do I prepare the house for sale?

To prepare your home for sale, you will need to step outside of yourself as the Homeowner and become a prospective buyer. Ask yourself what you would want to see in a new home. Doing whatever you can to put your house's best face forward is very important if you want to get close to your asking price or sell as quickly as possible. Short of spending a lot of money, there are several steps people can take to make their home show better:

• First impressions are important. Clean up the outside of your home. Sweep the sidewalk, mow the lawn, prune the bushes, weed the garden and clean debris from the yard.
• Space. Nobody wants a house that appears small because of clutter. Clean out closets to make them appear spacious. Store extra furniture so that rooms offer possibilities for furniture arrangements. Clean out the garage of anything but cars.
• Clean everything, especially kitchens and baths. Windows should sparkle. Clean the windows (both inside and out).
• Pets. If possible, keep them boarded elsewhere or at least outside when there are showings. Make the home seem as if there are no pets that live there. While you may love Fluffy and Buddy, prospective buyers may not.
• Paint. Check for any pealing paint. Touch up areas that are marked or dirty and won't come clean. A fresh coat of paint in a neutral color may help a prospective buyer imagine their furniture in a room that you have personalized with an accent color. If your home was built before 1978, federal law gives a buyer the right to request a lead inspection. If you think you might have some problems, do the inspection yourself beforehand and make any fixes you can.
• Appliances. Any appliances that stay with the home should be in good working order. Those that are not need to be fixed or taken out of the home.

What's a house worth?

A home 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 the property at a given point in time. To make their determination, appraisers consider square footage, construction quality, design, floor plan, neighborhood, availability of transportation, shopping and schools amenities, energy efficiency. Appraisers also take lot size, topography, view and landscaping into account. A comparative market analysis is an informal estimate of market value, based on comparable sales in the neighborhood, performed by a real estate agent or broker. You can do your own cost comparison by looking up recent sales of comparable properties in public records. These records are available at local recorder's or assessor's offices, through private companies or on the Internet.

How is the price set?

It's very important to price your home appropriately relative to current market conditions. Because the real estate market is continually changing, and market fluctuations have an effect on property values, it's imperative to select your list price based on the most recent comparable sales in your neighborhood. A comparative market analysis provides the background data on which to base your list-price decision. Study the comparable sales material presented to you by the different agents you interviewed initially. If the analyses are more than two or three months old, have your agent update the report for you. If all agents agreed on a price range for your home, go with the consensus. Watch out for an agent whose opinion of value is considerably higher than the others.

What is the best time to sell your house?

In addition to supply and demand, and other economic factors, the time of year you choose to sell can make a difference both in the amount of time it takes to sell your home and in the ultimate selling price. Weather conditions are less of a consideration in more temperate climates, but most of the time, the real estate market picks up as early as February, with the strongest selling season usually lasting through May and June. With the onset of summer, the market slows. July is often the slowest month for real estate sales due to a strong spring market putting possible upward pressure on interest rates. Also, many prospective home buyers and their agents take vacations during mid-summer. Following the summer slowdown, real estate sales activity tends to pick up for a second, although less vigorous, fall market, which usually lasts into November when the market slows again as buyers and sellers turn their attention to the holidays. Sellers often wonder whether or not they should take their homes off the market for the holidays. Generally speaking, you'll have the best results if your house is available to show to prospective buyers continuously until it sells.

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

Even in a down market, real estate experts say price and condition are the two most important factors in selling a home. So, the first step is to lower the price. Also, go through the house and see if there are cosmetic defects that you missed and can be repaired.

Whose obligation is it to disclose pertinent information about a property?

Obligations to disclose information about a property vary from state to state. Under the strictest laws, the seller and the seller's broker, if there is one, are required to disclose all facts materially affecting the value or desirability of the property which are known or accessible only to him. Items sellers often disclose include: homeowners association dues; whether or not work done on the house meets local building codes and permits requirements; the presence of any neighborhood nuisances or noises which a prospective buyer might not notice, such as a dog that barks every night or poor TV reception; any death within three years on the property and any restrictions on the use of the property, such as zoning ordinances or association rules. It is wise to check your state's disclosure rules prior to a home purchase.

What are the standard contingencies?

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.

How do I get the real scoop on homes I am looking at?

Home inspections, seller disclosure requirements and the agent's experience will help. Disclosure laws vary by state, but in some states, the law requires the seller to complete a real estate transfer disclosure statement.