How appraisers can help first time home buyers

How appraisers can help first time home buyers

From what’s been written in the news lately it appears that the number of first time home buyers may be on the rise. A large part of this group consists of millennials in their late 20’s and early 30’s who are tired of renting and are encouraged by lower interest rates. Because I am such a big proponent of educating consumers on the appraisal process I thought I would focus on how appraisers can benefit first time home buyers.

I have been appraising for over 20 years and still find the majority of customers, even those that have bought and sold many homes, still do not understand what happens during the appraisal process. While we do not have to go into the most minute detail we should inform them of what we are doing and why we are doing it. A person’s home is typically their biggest investment and they should know how this investment fits into the overall real estate market. Are they buying an overpriced investment that they may not be able to get their money back on when they go to sell? Or are they getting a good deal that will most likely provide a good return on their investment? Lets take a look at how appraisers can answer some of these questions.

Is the home really worth what they’re asking?

One way that an appraiser can benefit a first time home is by verifying if the home they want to purchase is worth what the seller is asking. While it’s not the majority of the time, I have found that sometimes homes are not being priced competitively with other properties. If sellers are working with real estate agents that are familiar with the market the agent will price the home to the market, meaning that they will take into consideration what similar homes have recently sold for and also what other comparable homes are currently listed at. When this is done then a home will sell within a reasonable amount of time and the buyers will be able to get financing (if their credit is good) because there should be no appraisal issues.

The other situation that can occur is when a home is priced based on different criteria than what is supported by the market. When this happens the home is usually over priced. When this occurs a lot of time can be wasted because the deal usually falls apart when the appraisal comes up short. Appraisers can assist these home buyers by providing an appraisal upfront to determine if there will be any problems with value. Typical examples of where this may be helpful are with properties that are in areas where there are few sales and where it is difficult to come up with a list price. In other cases some sellers have a predetermined number in mind that they want their home to sell for based on their own criteria, however that number may be unrealistic. The buyer can help make an informed decision by utilizing an appraisal to get the true market value of the home.

Appraisers can provide information on the neighborhood such as price ranges, ages, and what part of the life cycle it is in

If you consider that a home is an investment, you want the investment to fit within the acceptable parameters of the market (neighborhood) that it is in because a home’s value is maximized when it falls within the norms of the area. An example of this might be a home that is the largest one in the neighborhood. When this occurs its value is not maximized because there is less contributory value for the additional square footage that it has. On the other end of the spectrum you have the smallest home which typically provides more value per square foot because it benefits from the other properties “bringing up” its value. It’s nice to know if you are buying a home how it fits into its surroundings.

Another useful piece of information may include what part of the neighborhood life cycle it is in. Would you want to buy into a neighborhood that was on the decline or in its growth and maturity stage? If you plan on living in your home for an extended period of time you would probably want it to be in the growth and maturity stages so that it’s value would be preserved as opposed to the later stages when people may be moving out and homes start losing value. Older neighborhoods are not necessarily always on the decline because they can undergo revitalization which can result in appreciation in values. Knowing this type of information can help you make decisions about your biggest investment.

Appraisers can provide insight into the potential for resale value of your home by looking at supply and demand for the area, etc.

It’s difficult to predict what is going to occur several years into the future but we can make the best decisions possible right now by studying what has occurred in the past and looking at current trends. The resale value of your home is based on what the future demand will be for the area it is located in, among other things. Appraisers study supply and demand because it plays a big role in what the value of a property is. An area that has seen steady and strong demand over an extended period of time will be one that exhibits stable and even appreciating values. Sometimes it may be difficult to determine this in mature neighborhoods but a good sign that people still want to live in an area is when you have renovations of existing homes or even the tearing down and rebuilding of new homes that meet today’s standards. I see this occurring in several neighborhoods around the Birmingham, AL area,
especially when there is limited land available for development. If no land is available to build a home on, but there is strong demand, then this will occur. Most people don’t consider this when buying a home but it can be helpful in making educated buying decisions.

Question

If you are a first time home buyer how could the appraiser be helpful to you? Is there a questions or topic I  have not covered here? Leave me a message below and we can discuss.

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