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Surviving the Appraisal | Preparing For A Successful Real Estate Transaction

One of the most nerve wracking parts of a real estate transaction can be the appraisal process for both buyers and sellers. What is an appraisal? Why is an appraisal necessary? How much does it cost? What if the home doesn’t appraise for the contract value? There are many questions and concerns surrounding real estate appraisals, and rightfully so, but there are several things to know and things that can be done to prepare for a successful and low stress appraisal experience. 


Definition of Appraisal 
The first thing to know in this process is what is an appraisal? 
“An appraisal is a licensed appraiser's opinion of a home's market value based on comparable recent sales of homes in the neighborhood.” - redfin.com


An appraisal is a document compiled by the licensed appraiser only- a similar process can be followed by a real estate agent but is referred to as a BPO (broker’s price opinion) and are not accepted by lenders to qualify homes for loans. 


Some people confuse a real estate appraisal with a home inspection. An inspection an investigation of a home by a licensed inspector. The object of an inspection would be to determine any material defects or necessary repairs that need to be made prior to the closing. An appraisal is seeking value.


Why Do You Need An Appraisal?
The main reason an appraisal is necessary in a real estate transaction is that the lender requires a valuation of the property they are loaning money on so they are not overpaying out for the property. The bank doesn’t want to overpay for a property even if a buyer is willing to do so. Thinking from the bank’s perspective; if the loan were to default they need to make sure that they get their money back if they were to sell the property themselves. 


Other circumstances that could require an appraisal include refinancing a mortgage, estate planning, estate settlement, tax assessment review, tax advice and/or dispute resolutions.


How Much Does An Appraisal Cost?
Generally an appraisal runs between $250-$500. Factors that can affect the price of getting the appraisal completed are square footage, location and the complexity of the job. 


Because the appraisal is ordered by the lender for the borrower’s loan, the borrower pays for the appraisal. One question many have on the appraisal is who gets to see it? The borrower is financially responsible for the appraisal, therefore they have the final say on who gets to review the appraisal beyond the lender. This means that the seller does not necessarily get to see the appraisal even though it is done on there home, the seller is at the mercy of the buyer in this case. 


What Is The Appraisal Process

  1. Before there is a contract, a buyer should get pre-approval for a loan to understand how much money they will be able to borrow towards purchasing a home
  2. An offer is made, negotiated and eventually accepted by both buyer and seller and a purchase and sale agreement is signed. 
  3. Following the accepted contract is the period for completing due diligence this could include inspections, securing financing, etc. At this time the contract will be sent to the bank the buyer will be using to borrow funds
  4. The lender receives the contract and orders an appraisal. Generally the bank uses an appraisal management company who will then hire an appraiser to do the job. 
  5. The appraiser schedules a time for his inspection and when the appointment comes he does a walk through of the home and lot.
  6. Using the information gathered on site and comparable sales in the area the appraiser will compile a document which gives his or her opinion of the monetary value of the home and submit it to the bank who will distribute it to the buyer.


How Do Appraisers Price Homes?
During their visit to the home the appraiser looks at a few key items to help make their decision on value. These include:

  • Square Footage
  • # Bedrooms
  • # Bathrooms
  • Upgrades or Updating
  • Lot size and desirability 
  • Exterior Condition
  • Interior Condition
  • Construction Type
  • Neighborhood
  • School District
  • Any Unusual Factors


The appraiser will compute a numerical value using a check and balance system comparing the principal property in question to various comparable sales. For example if the principal property was a 3-bedroom, 1-bath home and the appraiser found a similar home and lot that sold in the area that was 3-bedrooms and 2-baths, they would adjust the price to take into account the lack of second bathroom in the principal home.


Some people believe that the value of a home is only based on the physical home itself and that is simply untrue in the world of real estate. A high quality home in a low quality neighborhood is going to be worth less than the same home in a nicer neighborhood, and the appraiser will take that into account when preparing their document. 


How To Prepare For An Appraisal (As The Seller)
When the value of your home is being determined by the appraiser you want it to be in the best condition possible. As previously discussed, there are money amounts added and taken away from your property when the appraiser is comparing it to others. If the home that sold was in spotless condition with all working windows and doors and first class safety precautions and the one for sale is the same kind of home but is very messy, has a cracked window, a door that sticks and is missing smoke detectors, these are all things that will lower the value of your home in the appraisers eyes. Most appraisers have a number in their head that they use when deducting for small imperfections (usually it’s about $500). Most small fixes will cost you much less than $500 each to remedy and will keep the value of your home going in the right direction for a sale. The following is a list of things to do before your appraisal to ensure the highest marks. 

  • Clean up your home and yard
  • Make small repairs to make the home appear well-maintained
  • Address health/safety concerns (detectors, etc) FHA loans have requirements in this area- save time and just get them done beforehand
  • List any repairs, updates or renovations (roof, windows, upgraded HVAC, finished basement, kitchen remodel, bath remodel, etc) These impact effective age of home and add value.
  • Ensure the whole house is accessible
  • Share map or survey if available
  • Make sure your agent attends to best represent you and your property 
  • Make the inspection process as easy as possible for the appraiser- they are human and a pleasant experience can go a long way.


What Happens If The Property “Doesn’t Appraise?”
Should the appraisal come back and the value is lower than the purchase price there are a few options before the deal completely falls apart. Here are a few things you and your agent can discuss before you throw in the towel.

  1. Look for errors. Appraisers are just like the rest of us and mistakes do happen. Be sure the addition and subtraction of dollar amounts make sense to both you and your agent (if you are the borrower). Have your agent check the comps and be sure they all makes sense
  2. Bring more money to closing. Just because the property doesn’t appraise for the amount the bank wants doesn’t mean the borrower can’t purchase the house, it just means they will only be approved for a certain amount through the bank. If they can come up with the difference in dollar amount the sale can still go through. 
  3. Extend the closing date. Related to number two above, you may be able to extend the closing date which could give you enough time to come up with the extra money needed.
  4. Renegotiate the contract. If both buyer and seller want to proceed with the deal the price can be changed to fall within the parameters of funding limits. 


It is important to point out in this circumstance how crucial it is to property price a home for sale from the beginning. Cash buyers that will decide against an appraisal cannot be counted on, therefore the property needs to be priced in a reasonable manner based on the same criteria an appraiser would use. A real estate professional should create a comparative market analysis (CMA) for their clients to be sure pricing of a home is done correctly.


Resources:

Be Smart, Be Ready and Ace Your Appraisal by Joe Boylan

How to Prepare For a Real Estate Appraisal by Bill Gassett

Real Estate Glossary by Redfin.com

Cellular Phone Boosting For Maine Properties

So, you are looking for Maine homes for sale and land for sale to get away from all the crowds.  One of my favorite parts of my job is helping people achieve their dreams of owning Maine real estate.  It is a balancing act to find the parcel that has the privacy you are looking for but still stay digitally connected to the world.  If you are among the few that don’t need to be connected, I envy you!  To the majority of Maine real estate buyers, read on…

First, you need to pick the right cell phone carrier.  This is easy, because we don’t have many options for reliability in Maine.  My first choice is U.S. Cellular and the following link is to their coverage map.  https://www.uscellular.com/coverage-map/coverage-indicator.html

The second and last choice is Verizon. The following link is to their coverage map.  https://www.verizonwireless.com/featured/better-matters/?intmcp=INT-SEA-NON-SE-coverage-051614-DE-SR-LP-T#maps

I was recently talking with a friend of mine, Brian Curtain, owner of NDC communications, https://www.ndccomm.com/construction/   207-852-9325. 

NDC installs cell towers throughout New England but they also have a residential division that can build your new Maine vacation home or Maine cabin.  From lot clearing, driveway installation, septic systems and the building of your Maine dream house, they are your one stop shop.

Just because you have a tower nearby, that doesn’t always mean you have access to the signal unless the tower is owned by your carrier.

The FCC has limited the boosting gain from 64 dB to 72 dB.  A single carrier booster can go up to 100 dB.  The gain comes from two sources, the indoor amplifier and outdoor antenna.  At the end of the day, you can’t boost what you don’t have.  You need to have some signal from the location. 

The bar meter on your phone is not always accurate.  Most people think it measures signal strength, which it does, but it also measures the quality of the signal.  Your phone may pick up interference from another nearby tower or the topography of the land between your current location and the cell tower.  Apple and Android have different ways of entering the field test mode to check on the signal strength you are receiving.  I don’t have time in this article to get into details but you can google the information.

One room systems start around $400 and whole house systems start in the $900 range.  Some of the popular boost companies are WeBoost, HiBoost and SureCall. 

I personally installed a WeBoost system at my off-grid vacation home.  I had weak signal outdoors and could rarely hold a call indoors.  After installing the system, I was able to use my cell phone as a hot spot.  I could log onto the net with my laptop and work from the location.  I was able to accomplish owning a very private, three season Maine home but still have access to the internet.

 

 

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    VA Loan Eligibility Guidelines | Maine Real Estate

    Thinking of buying a home using your VA Eligibility Certificate? Here are some pointers for picking the right property and reducing the time/effort and cash involved as a buyer. These are red flags that may keep a property from being eligible for this type of loan:

    1. Rotten wood around fascia boards, doors, & garage doors

    2. Loose or missing handrail on steps

    3. Outbuilding in disrepair or unsafe

    4. Broken windows or windows that won’t open

    5. Garage door opener not working

    6. Garage door safety feature not working

    7. Exposed wiring

    8. Water stains on the ceiling

    9. Inaccessible areas of the house such as attic or crawlspace

    10. Missing stove, HVAC, hot water heater, or other essentials

    11. Hot water, heat and/or power turned off

    12. Peeling paint in or on homes built prior to 1978

    13. More than 5 acres of land

    14. No driveway

     

    ** Photo is of a home that I sold to buyers using a VA loan.**

    I use this list when looking at homes with VA loans in mind. These are not the only issues but they give you good guidelines when looking and/or writing an offer. All of these issues SHOULD show up on a home inspection.

    If you are looking for a home in the greater Lincoln or Dover-Foxcroft area give me a call - I'd be happy to help you find your dream home. 207-290-0371 Carmen

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      5 Things to do outdoors near Lincoln, Maine

      If you love the outdoors you need to come to the Lincoln Lakes Region of Maine. Lakes, Ponds, rivers, trails and friendly people are easy to find. The following activities are just a start of what you can do in the outdoors of Lincoln.

      1. Paddling the Lincoln Lakes

      Dave Sandilands paddling on Cold Stream Pond in Lincoln, Photo Courtesy of Phil McPhail

       Lincoln has 13 lakes in clusters within the township. Of these lakes, some have developed shorelines with seasonal cabins and year-round homes, others are more remote and little developed. For the paddler the draw of the more remote and less traveled waters is very appealing. Check out Folsom, Crooked and Upper Ponds to find more solitude and less motor boat traffic.

       

       

       

       

       

      2. Sightseeing and Fishing on the Penobscot River

      Phil McPhail doing some fly fishing in the Penobscot River

      Maine’s Penobscot River is one of the country’s most significant flowing waters. The river originates in several branches in the springs of northern Maine and flows south and east until it merges into the mainstem in Medway. The river forms Lincoln’s western boundary and is mostly flat moving water with many islands and dozens of hidden channels. Boat landings in south Lincoln and Winn provide access to this section. Bald eagle sightings are an everyday occurrence and the smallmouth bass fishing is legendary.

       

       

       

      3. ATV/Snowmobile Trails

      Photo Courtesy of Scott White                                                                                                   

      Lincoln has dozens of miles of groomed snowmobile trails and maintained ATV trails system. Along these trails area views of the many lakes, the Appalachian Mountains including Mount Katahdin, small creek and stream crossings and a diverse forest landscape. These trails are lesser know than some of the busier areas of Maine and can offer the rider more solitude in nature. The trails are connected to the much larger state trail systems.

       

       

       

      4. Explore the Forests

      Fawn and mama deer in the spring- Photo by Phil McPhail

      Lincoln by area is one of the largest towns in Maine. Most of Lincoln is forested land owned in large contiguous tracts by owners who for the most part allow free use by the public for hunting, hiking and exploring. Be sure when doing so to keep in mind this is a privilege not found everywhere and please respect the owner’s property by carrying out everything you bring in.

       

       

       

       

      5. Local Festivals

      Loon Festival Parade- Photo Courtesy of Jean Hannington

       

      The outdoor heritage shared by Lincoln’s citizens is celebrated every year with two major festivals. July is time for Loon Vest, formally known as Homecoming. This event has parades, fireworks, downtown venders, BBQ’s and more including Thursday event kickoff with the annual River Drivers Bean Supper at Ludden Field on the bank of the Penobscot River. February is time for Winterfest, so grab your warm clothes and come to town. This year’s events include a professional snow-cross race at the Lincoln Snowhounds Club, a comedy fest and community bonfire.

       

       

       

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        Maine Current Use Tax Programs

        Maine has four current use programs to reduce taxes on land that is used primarily for a specific purpose. The four programs are tree growth, open space, farmland, and working waterfront. The following is a brief explanation of each program with links to guide you to more detailed information.
        Tree Growth Tax Law 
        The most commonly used current use tax program in Maine is the Tree Growth tax program. It may also be one of the most misunderstood. The basis of the program is to assess land of 10 or more acres based on its productive use as commercial timberland. Growing and harvesting must be the primary use.
        During 2017, Maine’s Tree Growth tax program came under the scrutiny of the governor’s office as did most 
        property tax reductions. It is believed, and probably rightly so, that a significant percentage of the properties enrolled in this program may not be in compliance with the law. In order to be in compliance, your forest management plan needs to be up to date and implemented. If you have purchased forestland in Maine and you have never talked with a licensed forester you may already be out of compliance. Bulletin 19 on the state website provides information for those already in the program and those considering enrolling. The web address for bulletin 19 is: 
        https://www.maine.gov/revenue/forms/property/pubs/bull19.pdf

        Open Space Tax Law
        This program provides for a reduced assessed value based on the property being preserved or 
        restricted for a public benefit. Qualifying public benefits include recreation, scenic resources, game management and wildlife habitat. The open space program does not have a minimum 
        acreage requirement. In open space the tax assessor will reduce the value by either researching sale data of parcels all or partially in conservation or preservation and computing a fair value, or by applying a percentage reduction based on the public benefit or benefits being applied. The reduction, depending on the benefit, can be as high as 95% of the assessed value. See Bulletin 21 at: https://www.maine.gov/revenue/forms/property/pubs/bull21.pdf

        Farmland Tax Law
        This tax law requires the land to be used for agricultural or horticultural purposes and must be of 5 or more contiguous acres. The land must earn at least $2,000 gross income per year to 
        qualify. The owner must file an income statement with the assessor by April 1 of each fifth year, after qualification, for the previous 5 years income of the owner or lessee.
        The assessor can use a number of factors to determine farmland values for current use 
        including farmer to farmer sales, soil types, land rents, and others. For additional information on this tax law see Bulletin 20 at https://www.maine.gov/revenue/forms/property/pubs/bull20.pdf

        Working Waterfront
        Land that qualifies for this current use tax treatment is for land on tidal waters or in the 
        intertidal zone used at least 50% for access or support of commercial fishing activities.
        The assessed value reduction varies from 10%, 20% or 30% depending on the percentage of use and potential deed restrictions for use. See all the details on the state site for Working Waterfront Q&A at: https://www.maine.gov/revenue/forms/property/pubs/workingwaterq&a.htm

        Moving Sideways 
        If you desire to change the use of your property under any of the first three laws above you can avoid any penalty for that change of use. Property changed from farmland to open space, 
        farmland to tree growth, open space to farmland, or open space to tree growth will not be 
        penalized if a parcel also meets eligibility requirements of the new classification. 

                                                                               

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          Welcome to our new blog!

          We look forward to making this the best resource for information about real estate, our local area, and current topics that impact you. Please feel free to comment on our posts if you have questions or reactions to share. If there is anything you'd like to see us write about, we'd love to hear your ideas.

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