You may have welcomed a real estate appraiser into your home and forked over a significant amount of cash for your property to be appraised…

…but do you really know what a real estate appraisal is?

There are many reasons why you might need a real estate appraisal.
A recent real estate appraisal may be necessary to demonstrate why your property taxes should be reduced. Appraisals may be required for probates, estate planning or divorce settlements.

The most common reason for an appraisal is to obtain a mortgage.
Federal and state laws, along with current banking regulations, require that lenders obtain an appraisal for most loans secured by real estate.

Still, if you’re like I was, you’re probably clueless as to how a real estate appraisal actually works! I would routinely grow frustrated with appraisers coming in low on value – thinking that if I put $15,000 into my house, surely the value should be $15,000 higher, right? Not necessarily.

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What is an Appraisal?

An appraisal is an objective supported opinion of value of an adequately described piece of property. The appraiser is expected to have sufficient knowledge, training and experience to accurately estimate property value. In this detailed and time consuming report, appraisers use comparable sales together with information about the property being appraised, its neighborhood and community along with the local and national economy, to support the appraised value.

You should remember that an appraiser looks objectively and not subjectively.

An appraiser will most likely look at the house as if empty: four walls, floors and a roof. Very little attention is paid to current owners’ furniture and decor when it comes to determining value. Your immaculate housecleaning, plush furniture and plasma television may make a room look nice and hip but these things do nothing for the value!

Important Tip!

If you are buying a house with the owner carrying the paper (loan), it is well worth the cost to hire an appraiser to make sure you don’t pay more than it is worth. For your protection many real estate agents will write in a purchase contract: this contract is contingent upon the property appraising for the sales price.

How is Value Established?

The value of a house is based upon recent sales of the similar neighboring homes in the market as well as rentals and listing data. Ideally, appraisers want to use sales of properties of the same size, age, room count, condition and with similar amenities and external influences. This rarely happens though, so adjustments have to be made, based on what people will pay extra for.

Examples: extra square footage, bedrooms, fireplace, upgrading, parking facilities, swimming pool, lot size, location and so on. This helps paint a better overall picture. This information is entered on a form, a value for differences is established and comparisons are made to the subject property. Typically a minimum of three verified closed sales with photos are required to establish a value.

Properties appraise for more when they are:

- Well maintained inside and out.
- Located in a good school district.
- Additions are done with the proper building permits.
- Additions conform with and fit well into the existing house.
- Properties throughout the neighborhood are well maintained.
- Not over improved or the largest house on the block.
- Style of the house conforms to those in the neighborhood.
- Zoning changes are not expected or there is not a mixed use.

Remember: Location, location, location!!! You can change everything about a house except it’s location.

What classifies a poor location?

- Located on a feeder street.
- Under an airport flight path.
- In or near a gang territory.
- Center of nightlife activities.
- In a rundown block or neighborhood.
- Next to a school or school yard playground.
- Next to apartments or commercial property.
- In close proximity to a freeway, expressway or railroad.
- Next to a gas station, near municipal garbage or toxic waste dumps.
- Odors from factories, farms and processing plants are routinely noticed.
- The city is affected by the closing of a major employer.

It’s important to THINK about SELLING when you are BUYING!!!!
Location is a big factor in a home’s appraised value. This is most notably felt at the time you sell or refinance. What seems like a bargain when you buy might turn into a real headache when you try to sell. Drive around the neighborhood and note any adverse conditions. You may think you can live with something adverse for the price, but when it’s time to sell you might find buyers won’t.

Important Tip!

Adding onto your house = Always obtain a building permit. A 600 square foot addition built without a permit is given no value on an appraisal. When it is time to sell or refinance, the frustrations of the building permit process will be worth it. Always save copies of the final permit sign offs and keep with your house papers.

Buying a house with an addition? Verify that it was built with a permit prior to closing the sale. Don’t just accept the seller’s word. Get copies of the permits before final sign off. Should you want to refinance or sell at a later date, and the appraiser cannot verify the addition being permitted, no value should be given. The result: no new loan or worse . . . no sale.

Tip!

A one bedroom house or condominium doesn’t appreciate as well and is harder to sell.

You should always try to work with an agent!!! An advantage of
working with a real estate agent is that they can provide you with sales information of similar properties to better guide you on how much to offer. Your agent can provide recent sales “comps” for similar homes in the neighborhood. Finding the list prices is also important. Comparing the list prices with the sale prices tells you exactly what percentage of the list price sellers are getting.

A local real estate agent typically will be more accurate what a home is likely to sell for in a specific neighborhood location.

The bottom line is we are all guilty of occasionally overestimating the value of a property. Especially when a lot of money, hard work and time is put into rehabbing a property, with the hopes of justifying a higher resale price and profiting from flipping the house. I can’t tell you how many times I’ve been frustrated over a lower than
anticipated value.

Just keep in mind that an appraised value is subject to other neighborhood factors beyond the condition of your home or improvements you’ve made to the property. Just revert back to this guide whenever you are going through the appraisal process.

To Your Success!

Aiden Win

Mr. Foreclosure

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ForeclosuresTaxSales.com

P.S. Remember to check out the Foreclosure Insiders Club to access a list of pre-foreclosures in your area that could be yours for considerably less than their actual market value! Join the Foreclosure Insiders Club to access a list of distressed properties in your area that could be available at bargain by owners looking to avoid bank foreclosure!

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How to do Your Own Foreclosure Appraisal to Determine the Market
Value of a foreclosure Property

There’s a lot of buzz about foreclosure auctions, free government
foreclosure listings and buying and selling them for profit.
However before submitting an offer on every foreclosure – you need a foreclosure appraisal. Out of 100 properties that I consider, I would narrow it down to about 10 that are worth looking at in more detail, and then submit offers on maybe 3 of them. The more offers I make, however, my chances of buying one at a substantial discount is greater.

So how do I know whether a foreclosure is a good deal and worthy of further investigation? Well, you need to determine what price you can potentially sell it for. Here’s what you can do to do your own foreclosure appraisal.

1. Comparable Market Analysis.

How much are similar properties selling for in the area? You can
find out in a couple of ways.

a. General market research

Drive around the neighborhood starting with properties within a
small radius and take note of all the properties for sale. Call the
realtor or the owners (they usually have a lawn sign with their
phone number) to find out what price they are asking for and
compare what features the property has – bedrooms, square footage, age, bathrooms, etc. Then expand the radius and do the same thing. With this, you know what price sellers are asking, which may or may not being what the property can sell for.

b. Through a Real estate agent

This way is more accurate than the method described above. See if you can find a realtor who will help you. Realtors have access to
an internal database of all properties that have sold through MLS
real estate Canada. You can request them to print off a report of
all the properties that have sold in your subject property’s area
within a certain time period (I would go back 1 year usually). You
can even search for only properties with a certain number of
bathrooms, square footage, etc that is comparable to your subject
property.

By seeing what similar properties sold for, you can now have a good idea of the price range of what you can sell your foreclosure
property for if you bought it for resale.

2. Cash Flow Analysis and Capitalization Rate (Cap Rate)

This is typically done for investment properties or properties with
rental income. The capitalization rate is the yearly rental income
divided by the price of the property.

So a property with an annual income of $50000 and a price of
$500000 means that the cap rate is 10% (50000/500000 = 10%). Each area has a certain cap rate, so if you know how much rental income a property has in one year, you can divide it by the cap rate and you will get the price.

Eg. Yearly rental income = $30000 Cap rate in the area = 9%
Property value = $30000/9% = $333333

3. Checking the Government Tax Assessment Value

Every city has a record of how much a property’s value is assessed
at for property tax purposes. This price is what the government
says that the property is worth. Compare what prices properties are selling for to the government tax assessment value. If they are
usually higher than the tax assessment value, find out by how much. Apply the same correlation to your subject property. If properties in the area are selling for about 10% more than their tax
assessment values, and if your subject property’s tax assessment
value is $500000, than the market value is probably around $550000.

Using Your Foreclosure Appraisal And Determining What To Offer

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Now that you have a good idea how much you can sell the property for with your own foreclosure appraisal, how do you know how much to offer the seller for the property? Now whether you are buying a foreclosure through foreclosure auctions and free government foreclosure listings will determine your strategy.

In a foreclosure auction, you basically have to bid an amount low
enough that will give you enough profit but high enough to beat the other bidders. I don’t like foreclosure auctions because there is
too much competition. I get pre foreclosures from government
foreclosure listings sites, these properties are not being
auctioned and usually have not been listed yet – which is perfect.

For these foreclosures, you need to do gauge how motivated the
seller is to sell. The more desperate they are to sell, than the
lower price they are willing to accept.

1. Finding Out How Long They Have Been In Default

Foreclosure listings sites sometimes has information on how long a
property has been in default. If they have been in default 90 days,
that means the mortgage lender(s) has just notified the owners that they will be foreclosed on if they don’t make payments or pay off the mortgage. The longer they are in default, the more desperate the sellers are because they do not want to lose all the equity in their property to the lenders.

2. Finding Out How Much They Bought It For and How Long Ago

Foreclosure listings sites sometimes include the original mortgage
amount, which gives you a good idea how much the seller’s bought it for and how long ago. If they bought it 20 years ago, then there is probably a ton of equity in the property from the appreciation over the years. In rare occasions, the sellers are willing to sell their property for what they bought it for, which would be a killer deal for you.

3. Finding Out How Much They Owe On The Mortgage

Foreclosure listings sites sometimes include what they still owe on
the mortgage. You can offer to pay off their mortgage, or offer a
price between what they owe on the mortgage and the market value. However, this amount is usually the minimum the sellers would accept to sell you the property.

So now you know how to do your own foreclosure appraisal through comparable market analysis, cap rate, and tax assessment value. You also know how to find foreclosures before they are in foreclosure auctions from government foreclosure listings.

To Your Success!

Aiden Win

Mr. Foreclosure
P.S. Get the best of deals available for Price, Terms, Urgency,
Information from our database goldmine of the latest pre-foreclosure listings

ForeclosuresTaxSales.com

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