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Home Improvements That Still Pay Big Returns
Home improvements are obviously investments in your home, and most homeowners have a list of things they'd like to do to their home to make it their dream home. Things like: gutting the kitchen, reconfiguring the bathroom or repainting the entire outside of the home.
The key to home improvements is doing them wisely. You don't have to spend a ton of money to add value to your home when it comes time to sell it.
Home Improvements With the Biggest Return on Investment
The National Association of Realtors (NAR) and Remodeling Magazine recently released their 2011-2012 Remodeling Costs vs. Value Report.
Exterior renovations dominated the list of the most cost-effective projects, those expected to recoup close to 70 percent of the cost.
1 – Siding replacement is already part of long-term home maintenance, but upgrading to fiber cement siding replaced the previous number one remodeling project of replacing exterior doors.
2 – An entry door replacement pays for itself. Replacing a wood door with a strong steel door not only pays for itself with cost recovery when you sell, but adds safety and security to your home while you're still living there.
3 – An attic bedroom addition, although not for everyone, adds value to your home, and is considered one of the least expensive ways to add another bedroom, without adding on to the existing structure.
4 – Replacing old worn out garage doors jumped on the list this year, mostly due to the cost of doing so dropping about 15 percent from last year.
5 – Window replacements are definitely a long term investment. Replacing old wooden windows with newer vinyl models will help you save on utility bills, and you'll recoup some of that investment when it comes time to sell your home.
New Attitude About Home Improvements
Many homeowners don't fret over paybacks from home improvements. Most owners want assurances that their renovations will enhance the property's market value, but expectations of 100 percent return on their money is no longer there.
Most people are happy with modest returns. For many consumers, fixing up their house now fits their sentiments — and their finances — far better than selling or buying. Useful enjoyment of their home improvements now seems to outweigh the old "how much will we recoup from these home improvements when we sell?" mentality..
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Appraisals: What They Mean For Your Mortgage
Appraisals are more important than ever before when it comes to determining the value of a house.
You've heard the scenario: You find the home of your dreams, you're already pre-approved for a mortgage, closing is all set, then, a low appraisal comes in and the deal is off.
Even though some of the tough mortgage standards have been easing up in recent months, getting an appraisal for what the house needs to be in order to make your lender happy, has not eased.
If a buyer signs a purchase agreement to buy a $250,000 home, but the appraisal only comes in at $220,000, the lender will only agree to finance on the lower value, not the purchase price. It's up to the buyer to come up with the rest, or find another house.
Banks are the main reason appraisals are coming in low. If they end up having to repossess a home (short sale or foreclosure), they don't want to be stuck with a a home that is worth less than the mortgage.
Are Banks Dictating Appraisals?
Lenders are not telling appraisers, "We want you to come in low", it's more like, "We want you to account for everything…" and many appraisers hear that and overcompensate on the low side.
There's even a box on standard appraisal forms indicating "declining value", which indicates falling home prices in that market. Banks will then cut another 5% off the loan just to protect their investment.
Any Options After a Low Appraisal?
One path buyers can take if a bad appraisal is about to kill their purchase is to renegotiate the sale price of the home. Often times, once a seller sees their home appraised for less than the sales price, they will agree to lower the price to save the sale. Low appraisals will only carry forward to the next potential buyer anyway, so it may be to the seller's advantage to come down on their price and get the deal done now.
So don't let a low appraisal mean the end of the road for your home purchase. Talk to your agent about renegotiating with the seller to see if anything can be done to help you still get that dream home..
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Home Prices Rising: Three Straight Months
Home prices rising means good news for the economy, or so everyone thinks.
Standard & Poor's closely watched Case-Shiller index declined in January for the fifth straight month, but according to John Burns Real Estate Consulting, that news doesn't reflect what's really happening in the market right now.
The independent research company conducted its own analysis of home prices in 97 markets and found that over the period of January to March, prices were up in 90 of those 97 markets by an average of 1.1 percent, or 4.5 percent annually.
One of the reasons many industry indices still shows a picture of gloom and doom is because most home indices are on a three-month lag for reporting.
JBREC's "Burns Home Value Index" calculates home values based on prices that are set at the time purchase contracts are negotiated and signed. Nearly all other indices are based on when the transaction closes, which can lag 2 to 3 months behind contract signings.
It is current because it uses what is happening in MLS databases all over the country, as well as some leading indicators the research firm has determined are reliable.
JBREC has calculated BHVI index values for the United States and 97 major metro areas, with history going back to January 2000.
Some people interested in selling their home have had difficulty doing so, not because they haven't been able to find a buyer, but because the bank's appraiser says the home isn't worth what the home was selling for.
A number of recent reports have highlighted the difficulty many buyers and sellers are having with appraisals in the current real estate market.
With foreclosures being a major factor in some areas, along with lower home prices, appraisers are sometimes coming up with values lower than the selling price. In those cases, either the buyer has to put more money down, or the seller has to drop their price. If neither side is willing to budge, then they either need to find another appraiser or forget the deal completely.
The issue is causing major issues in some markets. Earlier this month, real estate agents in Detroit told the Free Press that appraisals might be derailing up to 40 percent of their sales.
We'd love to know if you've run into a problem with an appraisal affecting a sale you're involved with, either as a buyer, a seller, or even an agent? Use the comment link below to tell us your experience.
Lower Home Appraisals Will Help Some, Hurt Others
Those who get hurt by lower appraisals are the sellers, who become underwater or even more than 25% underwater, which appears to be the threshold for mortgage mitigation programs. The lower the appraised value, the less likely a servicer will be willing to offer a Short Sale and the more likely that the homeowner will default and then foreclose. This could propagate into even lower home prices, exacerbating the problems in the housing market.
This will also hurt the homebuilders because new homes may become unprofitable to build and sell given the higher costs of building materials. In a market where new homes are being sold, the same model can be appraised at a lower price due to defaults up the block from the builder’s site.
This will likely lead to 3.5 to 4.0 million foreclosures this year, up from 2.8 million in 2009. Also keep in mind that the Case Shiller Housing Market Index is 50% higher than in 2000, so home prices have room for another leg down.
We will continue to monitor things and report here from time to time on the state of the housing markets.
Selling a Home? Get an Accurate Appraisal First
In an effort to save a few dollars in this down economy, many would-be-sellers today are turning to computer generated reports to establish the value of their property, rather than paying for a full appraisal. These sites use data that is collated from various resources to come up with estimates of what a property is worth.
Although a professional appraiser is more expensive, they are highly trained to accurately determine the value of many different types of properties, as well as account for many variables the computerized reports don't take into consideration, like surrounding neighborhoods, economic development in the area, and the quality of the school system, just to name a few.
Many lenders don't even require an in-depth inspection or interior inspection of a home, which begs the question: How can a realistic property valuation be arrived at without an on-site inspection? The answer is, it can't.
To obtain state licensing or certification, appraisers must undergo a stringent course of training through an accredited educational facility. In addition, some states require appraisers to complete an apprenticeship with a more seasoned professional before they can operate independently. The best appraisers will consider every aspect of the property, including square footage, room count, types of rooms, condition of property, lot size, neighborhood trends and comparable properties in the area that recently sold, as well as similar properties that are currently on the market.
Locating a qualified appraiser in your area is not a difficult task. Banks and lenders in your neighborhood can often refer you to reputable appraisers.
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