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Home Values

Who Decides Value?

The seller can put a price on the home but the value is ultimately, determined by the buyer. Individually, a buyer could pay over market value because they love the location, or the elevation of the home or the proximity to something that is important to them.  The shortage of available homes resulting in increased competition among buyers could drive the value higher.

Most experts agree initially pricing it properly will generally result in the highest sales price.  If a home starts out too high, it could actually sell for a lower price after it has been on the market for a while.  It gives the impression that there must be something “wrong” with the house because it didn’t sell immediately.

So, how does a seller determine what price to put on the home?  It has nothing to do with what the seller needs to get out of it.  Nor does the price the seller paid for it make any difference now.  Even if the seller made considerable improvements, they may not affect the value of the home.

There are three common sources for a seller to determine market value: an appraisal, a broker price opinion or an automated value model found online.

AVM, automated value models, are mathematical estimates that analyze limited public record data to determine a value.  While this process can easily compare square footage, age, number of bedrooms as objective data, it is much more challenging to make adjustments for subjective data like appeal, quality of construction, floorplan and updating.  Zillow Zestimates are the most common AVMs but there are many others providing similar services.

Appraisals can only be made by a licensed appraiser.  Most mortgages require an appraisal as part of the underwriting process to verify that there is ample collateral to secure the mortgage in case of default by the borrower.  FHA, VA, FNMA, Freddie Mac and USDA as well as most private lenders require an appraisal especially for high loan-to-value mortgages.  In some situations where the risk is lower, some lenders may use an AVM.

An appraisal requires the appraiser to visit the property, perform a visual inspection, analyze the property considering three approaches to value and accurately report the property information that is verifiable.

Broker Price Opinion, BPO, as the name indicates, is a price opinion on a property made by a licensed real estate agent.  The determination of whether the estimate accurately reflects the market will depend on the experience of the agent with that type of property and market area.  It is possible that a BPO could be more sensitive to the actual market because it will consider homes currently for sale and recently expired properties as well as comparable sales.

While all three methods, used recent, comparable sales to arrive at a value, the appraiser and the real estate professional can make a series of adjustments for the differences in the comparables.  While the appraiser is highly trained in this technique, the real estate professional also adds credibility to this process based on their experience in how the buying public might react to specific features and the home in general including positive and negative influences.

Current condition of the property is very important for a number of reasons.  In some price ranges, a buyer may only have the necessary down payment and closing costs but is not able to make improvements like paint, floor coverings, appliances or other major items.  In this situation, a buyer would have to live with the house in its current condition until they could afford to make wanted improvements.

Investors may not be deterred by making an additional investment in the home after purchasing it but will probably be motivated to do so only if it will increase the potential profit to be made.

An AVM can be a tool that a homeowner, prospective buyer, mortgage officer, appraiser or real estate agent can use to get a quick idea of price but there are inherent limitations that can only be considered by personal examination balanced with experience in the market place.

Experience and understanding of the subject property and the marketplace are critical to having confidence that a value is accurate.  Any person could go through the same steps to arrive at a value but an experienced, well-trained professional is far more likely to assess all of the variables more accurately.  If you are curious what your home is worth, call (503) 385-1518 or email hello@paramountoregon.com for a Broker Price Opinion.

Mortgage Lenders

Good Decision for a Second Opinion

You’ve done your homework, contacted a mortgage company and believe you are pre-approved.  That part of the process is finished and you can concentrate of finding a home and moving…or can you?

Pre-qualified and pre-approved are two different things but some people, including some in the business, use the terms interchangeably.  Pre-qualified is an opinion of likelihood that a borrower will be approved based on preliminary information about their income and credit.  Whereas, in a pre-approval, the borrower’s credit report is updated and pulled, income and assets verified and involves pre-underwriting.

Even when you have a highly qualified loan officer, the real decision maker is the underwriter who can commit the lender.  Generally speaking, a person who has been pre-approved receives a written letter stating the terms and conditions of the commitment.

A second opinion from a different lender can be a comforting thing for a borrower.  It will either confirm that the first lender was correct and that the rate and terms being offered are competitive or it will reveal that there could be differences that would warrant more investigation.

Mortgage money is a commodity and while competition usually keeps lenders close to each other in the rates and terms they offer, you won’t know for sure unless you shop around.  The cost for being pre-approved is usually a nominal amount and when you are considering the size of the mortgage you’ll be borrowing for up to thirty years, it makes sense to get a second opinion.

Occasionally, during the process of being pre-approved, an unexpected credit problem may be discovered.  It is better to learn about it early so you’ll have time to correct it before you have contracted on a home.

Your real estate professional, Team Paramount, will be able to recommend lenders who are active, experienced in the area and can share their experience with you regarding previous loans they have made.  The benefits far exceed the time and effort it takes.  You’ll be looking at the right priced homes; getting the best loan, rate and terms; have increased negotiating power with the Seller and can close quicker because many of the verifications have already been made.