The housing market has taken its lumps over the past year as mortgage lending requirements tighten and as buyers wait for the market to bottom out. Not everyone can or should wait to purchase a home, no matter how bad the local market may be, making it a buyers market where good deals can be had.
One of the drawbacks of buying in a down market is the value of the home you want to purchase. After peaking in 2005 or 2006, some local markets have seen home prices retreat by five, ten, even twenty percent or more. If you aren’t keeping tabs on these changes, you could pay significantly more for a home than it is worth.
How can you avoid overpaying for a home? That’s simple: get an independent appraisal to determine its actual worth. You’ll pay a few hundred dollars for this work, but you could save many thousands of dollars by taking this important step.
Two Kinds of Valuation Reports
You’ve found the home that you want, but you wonder if the asking price is on the money. Maybe a year or two ago it could fetch the seller’s $479,000 asking price, but you think that it is overpriced by many thousands of dollars. In that case, you’ll want to order your own valuation report to determine the home’s current value.
There are two types of valuation reports you can order:
Complete Valuation Report — Banks and other lenders will only lend you money based on the home’s actual value provided you are a creditworthy consumer, of course. Known as the Automated Valuation Model (AVM), this is a very accurate computer-generated property value report designed to duplicate the conventional appraisal method. It is the same report lenders use to determine a home’s value.
Subject Property with Recent Sales Report — This report is a computerized home value report and it tracks recent home sales within a particular selling area.
So, which report should you choose? You’ll want both in order to have a clearer understanding of the home’s value and the local market. Together, you can arrive at a satisfactory price for the home and make your bid accordingly. Besides, if your offer is substantially lower than what the homeowner is asking, then you’ll need these reports to substantiate your price.
Some realtors may want to obtain these reports for you, but you would do better to order them on your own. A recent situation in California involving buyers and their realtor showed that a couple overpaid for their home by as much as $105,000. The realtor, who is also a mortgage broker, overpriced the home (according to the couple) for his or her personal benefit.
Avoid possible conflict which can be avoided simply by securing a home’s valuation report independently.
In the end, you win if you get home valuation reports for yourself. You may not be able to reduce the price of a home by tens of thousands of dollars no matter what the report says, but you can be in a much better bargaining position nonetheless.
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