Top 7 Factors Determining Your Home's True Value In Today's Market
By Ed Craine
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Today’s real estate market presents plenty of challenges. In addition to the tightening of credit, and stricter guidelines for obtaining mortgage loans, homeowners can expect some changes in the way the value of your home is determined as well.
While the changes shouldn’t prove unbearable, if you’re considering refinancing your home (perhaps to pull out some equity to invest in all of the deals that abound) you need to be prepared for your lender to put the value of your home under the microscope. Due to declining home values in many areas nationwide, lenders are doing their best to determine not only the current value of your home, but also what the home will be worth several months or several years from now. That is, they will spend a great deal of time scrutinizing the following 7 factors, in an effort to determine your home’s “true value.”
Your appraisal by a certified professional still carries weight and will still be required by your lender. This is nothing new. However, don’t be surprised if you find that the appraiser spends more time in your home than they have in the past. Their reputation is at stake, and they will do everything in their power to make sure that their appraisal is as precise as possible.
- Current Asking Prices On Comps.
Comps (appraisals and statistics on comparable properties to yours) are not a new requirement by lenders either. However, in today’s market they will be paying much closer attention to the current asking prices of comps in your area, than in recent years. This will give them an idea of what price your home could initially be listed for, if you were to sell it. Keep in mind that the asking price and the price a home eventually sells for may vary by tens of thousands of dollars.
- Price Reductions.
Lenders will also be looking at how many homes in your area have been reduced in price since first being listed for sale. They will study price reductions not only on the comps in your area but on all properties in your area. If most or all of the homes in your area have been reduced in price, they may determine that your home is in a declining value market, thus reducing the amount of money they will agree to lend you
- Time on The Market.
Just for good measure, lenders will also look to see how long comps in your area remain on the market before the sale closes. The longer the homes in your area stay on the market, the more likely the lender will be to consider your area a declining market. Unfortunately, studies have shown that the longer a home stays on the market, the lower the final sales price will be (even in markets where values remain stable.)
- Sales Transaction Comparisons.
Further to the end of determining what the lender deems your home’s “true value,” you can bet that they’ll be running comparisons on the number of sales transactions completed in your area last year, six months ago, and currently. This is done to try to predict what direction values are heading in your area. While it’s not a precise science, lenders may deem your home’s value lower if last year, for example, 15 homes in your area were sold in one month, meanwhile this year only 5 homes have sold.
- Default Numbers.
This factor will play a bigger role now than in recent memory. Lenders will absolutely be looking at the number of homes in your area which have received a notice of default (meaning the owners are behind on the mortgage payments.) A notice of default-also known as an NOD- is the first step in the foreclosure process, and an abundance of NOD’s in your area may have a negative impact on what the lender determines to be your home’s true value.
- Foreclosure Numbers.
Perhaps the biggest indicator that your home is situated in a declining market will be the number of homes that are in foreclosure in your area. Through no fault of your own, your home may be valued lower than you expected due to increasing numbers of foreclosures in your area.
Ed Craine is CEO of San Francisco based Smith Craine Finance, an award winning mortgage brokerage. He was appointed Vice President of CAMB in 2007. Ed serves as an Executive Director for BNI, and is a contributing author to several NY Times Best Selling Books. Visit http://www.smithcraine.com
Article Submitted On: January 22, 2008