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The Basics of Appraisals

Three types of loans are generally available in D.C.

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property appraisal, gay news, Washington Blade
A loan officer will order a property appraisal.

If you’re buying a home, chances are you’ll need a loan to make the purchase. Once you have a contract, your loan officer will order an appraisal of the property.

There are three types of loans generally seen in D.C.: Conventional, Federal Housing Administration (FHA), and Veteran’s Administration (VA). Outside the Beltway we also see United States Department of Agriculture (USDA) loans.

The job of a licensed or certified appraiser is to determine a home’s fair market value. This lets the lender and the buyer know whether the value and the loan amount are in keeping with the what you have agreed to pay for the property.

An appraiser will view the home, take pictures and make notes to later be transposed to the Uniform Residential Appraisal Report and provided to the lender, who will share it with you. In the case of FHA, VA, and USDA loans, the appraiser’s requirements also include a limited property inspection.

Armed with that information, the appraiser will research properties that have recently sold to determine which are closest to the makeup of the home you are buying. Typically, the appraiser will look at properties within a half mile radius that have sold within the last six months and select at least three homes to compare.

Some typical items compared are lot size, square footage, number of bedrooms and baths, exterior features such as patios, decks and fencing, parking availability and features like central air conditioning and fireplaces.

The sales price of each property is the starting point. From there, the appraiser will assign a dollar amount to each item, then add to or subtract from the sold price to arrive at an adjusted sales price for each of the comparable homes.

For example, if the home you are buying has a fireplace and a comparable home has none, the appraiser will add a predetermined value (perhaps $3,000) to adjust the actual sales price of the comparable home to reflect the value if both homes had fireplaces.

Similarly, if the comparable home has two fireplaces, the appraiser will subtract the $3,000 to adjust the home’s value in line with the one fireplace your home has.

Also included are the age of each home and its condition and quality. The condition standards range from C1 (new construction) to C6 (deferred maintenance that affects structure and stability). Most commonly seen in our area is category C3 (well-maintained with some upgrades).

The categories that denote quality are Q1 (individually designed for a specific person or purpose using the highest quality exterior and interior materials) to Q6 (basic quality using lowest cost building materials). Once again, Q3 is what we normally see (higher quality with upgraded interiors and finishes).

Most appraisals will reflect the sales price of your property. If yours comes in above, congratulations! You got a bargain. But what happens if it comes in low?

If you have an appraisal contingency, you have five options: 1) challenge the appraisal, 2) proceed with the sale, adding money to your down payment to make up the difference, 3) ask the seller to lower the price to meet the appraised amount, 4) negotiate with the seller to split the deficit in a mutually agreeable manner or 5) exit the contract and have your earnest money deposit returned.

To challenge an appraisal, review it with your agent and look for discrepancies. Are the comparable homes located in the same area? Are there better homes to compare? Are there errors in describing the houses? Have specific items been properly adjusted?

Your agent can provide any new information to your lender, who will forward it to the appraiser to review and make a final decision. If your challenge is not successful, your agent will help you negotiate with the seller to find the best solution.

So, what’s the worst-case scenario? My own experience, of course. I attempted to purchase my current home four years ago with an FHA loan. I was all excited until the appraisal came back—at $90,000 less than what I had agreed to pay! And because of FHA guidelines, that appraisal would be tied to the property for four months until I could get a new one.

My loan officer provided the solution—change my loan to conventional and order a new appraisal. When I received it, I realized that the first appraiser had made a $50,000 error and used houses that were of much lesser quality as comparable homes. I had been avenged!

Valerie M. Blake is a licensed Associate Broker in DC, MD & VA with RLAH Real Estate. Call or text her at (202) 246-8602, email her through DCHomeQuest.com, or follow her on Facebook at TheRealst8ofAffairs.

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Real Estate

How to prepare yourself in this seller’s market

Millennials are putting down the avocado toast and picking up mortgages

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Just because it’s a seller’s market, doesn’t mean it’s not a good time to buy.

For the first time, Millennials are cutting back on spending money on multiple streaming subscriptions, $10 drinks, and avocado toast. They are dipping their feet into purchasing their first home. The current market conditions can be tough for some buyers though, so being prepared is more important now than ever. 

The first step in the home buying process is finding the right real estate agent. Your agent should be trustworthy and someone who is knowledgeable about the area, sales contract, and local programs that may be able to save you money. Once you find the perfect agent, ask them to refer you to their preferred local lenders. When talking with lenders, not only should you focus on interest rates, but also ask about their in-house processing and underwriting. This may be able to give you a competitive advantage against other offers. 

Once you’ve decided on your lender, they will need several documents to help them determine your eligible purchase price. Now is the perfect time to get your documents in order, including 30 days of pay stubs, two years of tax returns and/or W2s and 1099s, and two consecutive bank statements. Providing these documents in a timely manner can help expedite the pre-approval process and prevent delays once you’re under contract. The lender will also look at your median credit score from the three major credit bureaus. Since your credit score has a direct effect on your interest rate, it’s important to pay close attention to your score. If your credit score needs a little help, talk to your Realtor and lender to see if they have recommendations on how to boost your score or programs that may be able to help.

After you’ve been pre-approved, it’s time to look at properties. With these current market conditions, properties typically don’t stay on the market for very long. Depending on the type of property, some may only be on the market for a few days. Doing your due diligence at the beginning of your home search can help save you time and focus on the properties that really fit your criteria. Now is the time to make that wish list, visit neighborhoods, research schools, and get a really good idea of what you’re looking for. In this market, it’s very important to see a property as soon as it hits the market. By fully understanding your search criteria in advance and making sure you’re available to see properties after work or on a lunch break, you will be better prepared to make an offer when “the one” hits the market. 

The most common question I get now is, “should I wait?” In most cases, the cost of waiting can cost you. With historically low interest rates and housing prices continuing to increase, now is still a great time to purchase real estate. Being prepared, patient and having an informed Realtor and lender on your side will definitely help in this market.

Teddy Rojanadit is a licensed Realtor in D.C., Virginia, and Maryland with Bediz Group at Keller Williams Capital Properties. Follow him at @teddydcrealtor on Instagram, TikTok and Facebook. He can be reached at [email protected] or 202-664-3736.

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Real Estate

The five-step downsizing plan

Set goals and a budget — then de-clutter

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Before you downsize, you’ll need to de-clutter your home.

Are you considering downsizing? For any number of reasons, this might be a decision that makes sense at this point in your life. 

Perhaps you have children that are now grown and have moved out, or you entertained large parties and those days have passed, now having more space than you can use. Maybe you simply want less home to take care of and fewer chores on your to-do list. Perhaps you’d like a smaller mortgage, so you can put the extra money toward other things. Or possibly, you’re willing to pay a slightly higher mortgage so that you can have a smaller home in an area where you’ve always wanted to live. Whatever your reasons, if you’re thinking of downsizing, having a plan can be extremely valuable. Those preparing to downsize may find that following this helpful five-step plan can make the process a smooth and successful experience:

Think through your goals: This may seem like an obvious step, but it is one that people often overlook. As you think about downsizing, take the time to sit down and come up with a detailed list of your goals. Ask yourself the necessary questions that will help you to narrow and focus your search. These are questions like: What’s important to you in life — being close to family and friends? Living in a place you love? Having easy access to medical care? Access to an international airport? Spend some time thinking through your priorities and desires. How much of a mortgage will you be able to pay, particularly if you are retiring or anticipating increased health care costs as you age? Maybe you’re able to live mortgage free with the sale of your larger home.

How much square footage would you feel comfortable caring for? How will you prepare for the move? Thinking carefully about your future by working through important questions like these can help you move closer toward a concrete vision of your ideal downsizing situation and provide peace of mind and confidence during the process. 

• Look for a location you love: Location is an important aspect of any real estate transaction, but this can be especially true when downsizing. What are your reasons for downsizing? Thinking this through may help you to choose a location that is ideal for your needs. Are you downsizing because you are getting older and health issues are a concern? If so, choosing a location close to a city center where you can easily access medical care might be important. Are you downsizing because you’re tired of living in a large home in a suburban area and want easier access to amenities that a more urban environment may offer? If so, looking for more walkable neighborhoods closer to a larger metropolitan area might be important for you. Are you retiring and downsizing because you want to live in that gay-friendly city that you’ve always loved? Focus your home search there. 

• Be sure to budget: After you’ve thought through your goals and decided on a desirable location, you’ll want to spend time closely looking at your financial situation and coming up with a realistic budget to achieve your goals. Meeting with a financial professional to review your assets and debts, what you might make from the sale of your current home, and what the total costs of downsizing might be can be tremendously helpful, and can ensure that you make your move with financial confidence and security.

Don’t forget to declutter: Certainly, downsizing means you’ll have less space – and this means less room for extra stuff. Before your move, take advantage of the downsizing process as an opportunity to let go of items you no longer truly need or use and to make space for new things and experiences. It is important to get started on this process early. Often, when people are downsizing, they still overestimate the amount of room they will have for extra items. Don’t make this mistake. Taking the time to sit down and think about what will fit within your new space removes the stress of later having to dispose of those belongings after you move.

Find the right agent: The importance of this step in your downsizing plan should not be overlooked. Whether you are staying relatively close to home or moving across the country, you will need an agent who knows the community you’re interested in and can help direct you to neighborhoods and homes that will best fit your needs. This can particularly be true when you are an LGBTQ home buyer or seller and you want to ensure that you find not only a house that you love, but also a community where you can feel truly at home. Working with the right agent can reduce your stress, save time, and greatly increase your overall satisfaction with your real estate experience. Wondering how to find exactly the right agent for your needs? At GayRealEstate.com, that’s where we come in.

Whatever your real estate needs – whether you are looking to buy, sell, upgrade, or downsize, at www.GayRealEstate.com, we are here for you. We are passionate about connecting LGBTQ home buyers and sellers across the country with agents who are talented, experienced, and committed to helping their clients achieve their real estate dreams. In any real estate experience, having an agent who knows and loves their community and who values each client, and understands that client’s unique needs can be invaluable. We are dedicated to delivering that experience every time. You deserve nothing less. We look forward to helping you soon.

Jeff Hammerberg is founding CEO of Hammerberg & Associates, Inc. Reach him at 303-378-5526 or [email protected].

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Real Estate

Interest rates are down, even in this seller’s market

That shouldn’t discourage buyers

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Don't be scared off by this seller's market.

While it is true that in the last year, home sellers have been attracting multiple offers, as homes with more space, outdoor space, located close to parks, water features, and convenient transportation became highly desirable after most of the world stayed home in a global pandemic, home buyers still have reasons to look for a new home. 

The average 30-year fixed-rate mortgage fell four basis points from the week prior to 2.98%, according to Freddie Mac‘s PMMS. Within the past almost three months, mortgage rates have only peaked above 3% one time.

Even as recently as a few years ago, many buyers were finding rates closer to 3.75%, 4%, or 4.25% depending on their credit and income. Even a change by one percentage point can alter the monthly payment for a home by up to a few hundred bucks a month. The benefit to having a mortgage is that you can lock in your monthly payment, known as PITI (Principal, Interest, Taxes, and Insurance) and the only variables are the condo fees or HOA fees (if there are any) and other utilities.  

If buying a home has been on your radar lately, it might be worth talking to a reputable lender who has a good knowledge of the DMV market. Even if it’s not part of your plan for the year, speaking with a lender sooner rather than later can help you devise an action plan to increase your savings toward a down payment, paying off certain bills or debts to help increase your credit score, and just in general do a financing “clean up” to position yourself for purchasing when the right time comes.  

I have no crystal ball, but my suspicion is that as the world opens back up, and people have more options to travel, attend concerts, go to weddings, etc., the pent up demand for housing might relax a little, and buyers might be able to squeeze into the market with a little more ease. 

I will be offering a home buyer seminar on Tuesday, July 13 with a local lender on Zoom.  If you want more information please contact me and I can send you the link to access.

Joseph Hudson is a Realtor with The Rutstein Group at Compass. Reach him at 703-587-0597 or [email protected].

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