Appraisal Information and Tutorials

Cash Buyer? Don’t Skip the Appraisal!

Buying a Home with Cash?

1607 homes listed in the Austin-area MLS were purchased by cash buyers in the last 90 days.

One question we hear is, “If I have the cash, and I don’t need a lender to give me a loan, why would I spend the money for an appraisal?”.

The short answer is: to get an independent opinion of the value of the home. Because you’re making a BIG decision and extra information to inform that decision is a good thing. Because after the inspection (by a licensed home inspector, to determine the condition of the property), you might want to re-negotiate the contract terms (before your option period runs out). Having the results of the inspection AND the results of an appraisal will give you information that can help you weigh your options if you decide to re-negotiate.

And, in particular, if you’re a cash buyer because the house needs too much work to qualify for a loan, then an independent opinion of the value of the property can help you decide if you really want to do the deal. You can order an appraisal for a cash purchase that provides both an AS-IS and AS-REPAIRED value.

What does it take to order an appraisal? Just call (512) 541-2107. We can usually schedule the inspection within two days, and have the report back two days later.

Too Much Stuff?

Are You Drowning in Stuff?

After appraising thousands of homes in the Austin area in the last few year, one thing we know for sure: people have a lot of stuff.

Too Much Stuff
Too Much Stuff

Inside stuff, outside stuff, recreational stuff, baby stuff, craft stuff, car stuff.

All. Sorts. Of. Stuff.

Does the Appraiser care about the stuff?

For the most part, not really. The appraiser cares about the actual property, not the stuff in it.

The Appraiser cares what the house is built out of (the overall quality of the construction), and the condition it is in (whether or not the maintenance is current). As long as the Appraiser can move about the house and can see the current condition of property, then the stuff shouldn’t matter.

Now the stuff in the photo would matter, because it would keep an appraiser from getting into that back hallway. In a case like this, it’s a good idea to make sure a clear path to all areas of the house is open. That makes sure the appraiser can actually see the whole home, and that it is safe for him or her him to move around. (In case you’re wondering, that is my own home, while the kitchen was being renovated – an extra stove sat in the dining room for several months!).

House Appraisal: How to Find the Value of a Home

A House Appraisal: Find the Value of a Home

How do people find the value of a home? Meaning, what a home (usually their home) is worth?

Of the most common ways to find the value of a home, a formal house appraisal is the most accurate.

If you REALLY want to know what a property is worth, you need to know why most (cheap and easy) ways to find a home value aren’t accurate. If the value you find for a property isn’t right, then what good is that?

Ways to Find Home Value

A House in Texas

On-line (Internet) “instant” home values websites
These are probably the worst way to find the home values – they rely on incomplete information, and the data is often out of date. Yeah – they’re fast but what good is fast if it’s wrong?

What a neighbor’s house sold for last year
Another unreliable source of information – unless the neighbor’s house is exactly like yours and the sales price has been confirmed by someone with access to the real numbers for the sale. Even then, the market TODAY might not be what it was when the neighbor’s house sold and we all know that timing matters a lot in real estate.

The tax records
Although these should be a good source of home values information, tax records are frequently wrong since the tax district doesn’t usually know about updates or renovations to a home unless the updates required a permit. Tax records also don’t show that the homes sales prices in an area are going up or going down. Tax values also rely on huge databases of information that may not be up to date.

A local real estate agent
An experienced real estate agent can give you information about other homes that have sold in your area, which can give you an idea of what your home might sell for if you are planning to sell it.
Unless you really are planning to sell, though, and are looking for an agent to list your home, a local agent might not want to spend the several hours that it takes to pull the best sales data for homes like yours that sold in the last few months.

A house appraisal
Otherwise known as a real estate appraisal, a house appraisal is the formal way to find the value of a home. Real estate appraisers have to have formal training, pass difficult exams and use very well-defined ways (approaches to value) to figure out the actual, current market value of a home. Read the article Appraisal Steps: Determining Market Value of Property to understand what an appraiser does to figure of the value of a property.

Which Way Will Work For You?

Sometimes, you just want an idea of what the value of a home is. In that case, check out the on-line home value sites. Or, check out the tax records just for fun.

If you’re planning to sell your home, call a local real estate agent who knows your area well.

If your home is unusual (really big, really small, on a huge lot, heavily upgraded . . .) or you want the most accurate market value opinion for your home, you should bite the bullet and call a local real estate appraiser to do the job.

Federally Related Transaction: What Is It and Why Should You Care?

Federally Related Transactions (US and Texas) – Why We Need the Definition

Once upon a time, Savings and Loans (S&Ls) ran amok. FIRREA (Title XI of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 (aka “Title XI”)) was passed in 1989 in response to the Savings and Loan Crisis after it bankrupted the Federal Savings and Loan Insurance Corporation (FSLIC).

American taxpayers footed the bill for over $75 billion (according to Mortgage News Daily).

Definition of “Federally Related Transaction”

FIRREA (Title XI)

and

The Texas Appraiser Licensing and Certification Act (Section 1103.001) of the Texas Occupations Code (Chapter 1103)
define a Federally related transaction to be a real estate-related transaction that:

Requires the services of an appraiser; and

is engaged in, contracted for, or regulated by a federal financial institution regulatory agency.

What are Federal Financial Institution Regulatory Agencies?

According to Section 1103.003.6-b of the Texas Occupation Code, these are:

The Board of Governors of the Federal Reserve
System;

The Federal Deposit Insurance Corporation;

The Office of the Comptroller of the
Currency;

The Office of Thrift Supervision;

The National Credit Union Administration; or

The successors of any of those agencies.

Why Should You Care?

A real estate appraisal used in a federally related transaction must be performed by a state-licensed or state-certified appraiser to be considered valid.

Who Regulates Texas Appraisers?

The Texas Appraiser Licensing and Certification Board (TALCB) licenses, certifies and regulates real estate appraisers in Texas. Other states have similar licensing boards.

As A Homeowner, Do You Really Need to Know This?

The good news for you if you are a homeowner is this: you won’t be the one ordering the appraisal for a federally related transaction. The person ordering the appraisal is usually a mortgage broker or lending institution and the appraiser receiving the appraisal will need to certify that he or she is properly licensed by his or her state to perform the appraisal for the property in question.

Fence Value and the Running Joke

How Much is a $5000 Fence Worth?

Yes, you read that right. A $5000 fence is very unlikely to be worth $5000.

Fence Cost does not equal Fence Value

Most home improvement projects don’t return 100% on the investment.
Maybe one would if you did all of the work yourself, and used materials left over from another job, but that is not often what happens.

After a homeowner spends money on an improvement, they hope, or really really hope, that the cost of the improvement, i.e. the value of the fabulous thing they installed, is actually the same as or more than the cost of the improvement.

Let’s talk about a theoretical home improvement situation. If you were appraising (as an appraiser), or listing for sale (as an agent), or buying a home (as a buyer) with a brand new $5000 fence, would you consider the fence to be worth $5000?

I would say probably not.

You might think it was worth something, but in part that depends on what the fence replaced – an old rotting one that was the neighborhood eyesore? A brand new cedar fence with a custom gate, installed by the developer as an upgrade for clients that couldn’t close? Did it enclose only part of the yard and block the greenbelt view enjoyed by other homeowners? What is that fence value, to you?

We call this a running joke because most of us fall prey to this, in our own home improvements. We upgrade from a serviceable thing to a fancier thing and really really hope that when we go to sell, the buyers, and the real estate agent and the appraiser will value it as much as we do.

In real life, that is almost never the case.

So, if you really want that $5000 fence, put it in because you LOVE it, not because you think you’ll get your money back.
And please, don’t hassle the real estate agent that tells you it doesn’t make your $135,000 house worth $140,000, and don’t give the appraiser a hard time, either.

Both of those professionals have to rely on what the market will pay for an improvement of the kind you put in, and if the market doesn’t value it, it doesn’t really matter what it cost.

Is this fence value $5000?