The Appraisal Process

The appraisal process often baffles consumers. They may feel their home is worth a higher dollar amount, and the appraised value doesn't always make sense to them. It is important to know that appraisal guidelines are dictated by the lenders, and in some states, it is a requirement to also disclose what the appraisal will be used for because there are different rules to follow depending on the purpose.

In effect, lender guidelines force appraisers to put a fair market value on homes based on comparable sales in the same area, and the home must be bracketed in size and value. For example, there is no set dollar figure associated with a great view, pool, spa, bathroom upgrades, etc. If a homeowner installs a custom pool that cost them $30,000, but the local marketplace supports the value of a pool at $15,000, then that item will be bracketed as [$15,000] on the appraisal.

Upgrades can usually be expressed at full value in newer homes, because the only way to get those upgrades was to put more money into the cost of building the home. On the other hand, the upgrading or remodeling of an older home is rarely reflected in full in the final appraisal. This is because the home had value in its original condition, and again, the value of the upgrades must be supported by comparable examples within the same marketplace.

These comparisons must be drawn from current market activity within the last six months, and some lenders will want to look at both closed and pending sales, to see if there is any room for negotiation. This is a safeguard to prevent appraisers from attaching too high a value to the home in question. This guideline further states that appraisers can only base their opinion on the value of homes that have actually closed escrow. Any supporting comparison from pending sales will reinforce the reference to the closed sale given.

However, when property values are increasing drastically within a marketplace, the appraiser is generally permitted to make a concession and put more weight on the evidence provided by comparisons to pending sales and listings, allowing for a “real time” appraisal.

Although there is no formal standard to speak of, most lenders give the appraiser a 5% margin of error. If the file is reviewed and the appraiser is off by 8%, there is a good chance the value will be cut by the full 8%. It is in the best interest of both the appraiser and the homeowner not to try to push the value up higher than the market will support, otherwise the property evaluation would then be exposed to a severe appraisal review.

Provides by James Gill, a senior loan executive with Peninsula Mortgage 310 375-6456

Reverse Mortgages

This was an interesting article from "Market Watch"The number of Americans over age 65 is expected to double in the next 30 years to 70 million. And those older Americans will be living longer. But with one of the lowest savings rates in the world, just what will they live on?

In the years to come, more and more retirees are likely to be looking to tap one of their largest assets to get by financially -- their home equity. Reverse mortgages are one option they might consider.

Good Heating system advice

Experts advise that you hire a licensed professional to give your home heating and cooling systems the once over at least once a year.
When properly maintained, home heating systems are not only safer, but work more efficiently to help offset the rising costs of fuel. Clean, efficient systems also last longer.

The new Federal estate tax exclusion for 2006

Some good news – the new Federal estate tax exclusion increased in 2006 to $2 million per person. In the past ten years, that amount has increased over 230 percent, as the figure is up from $600,000 in 1996. Count on this tax exclusion figure to remain in effect until 2009, then the amount is scheduled to increase one more time to $3,500,000 per person. After 2010, it will supposedly be repealed altogether.

Estate tax differs from income tax in that income tax is owed every year on any revenue. Estate tax is owed on the net value of your estate at the time of your death if you leave your assets to any beneficiary other than your spouse. To break this down, let’s say you pass away and leave your entire estate to your children. Your estate is made up of everything you own and includes such items as residential property, life insurance proceeds, IRAs, automobiles, jewelry, cash accounts, etc. If you total the amount of all assets and subtract any debts that you may owe against property or automobiles, the remaining value is known as your "net estate value" and that is the “net value” that could be subject to estate tax.

Important: Your C.P.A. is the best person to educate you about estate taxes.

2005 California housing market stats... FYI

2005 California housing market eclipses previous records
LOS ANGELES (Dec. 28) – The California residential real estate market in 2005 will be one for the record books, eclipsing the annual sales and median home price records set in 2004, according to the California Association of REALTORS® (C.A.R.).
Here are some highlights from 2005 and a look ahead to 2006: - Sales of detached, existing single-family homes are expected to reach 635,000 in 2005, an increase of 1.8 percent over last year’s record sales of 624,700. Sales are anticipated to decline by 2 percent in 2006. - 2005 will be a record year for home prices. The median price of a single-family home in California crossed the $500,000 threshold for the first time in April 2005. The annual median is expected to reach $523,150 in 2005 and increase 10 percent to $573,500 in 2006. - The median price of a single-family home increased by double-digits for the fourth consecutive year in 2005, though the pace of price appreciation slowed from the 18 to 21 percent annual gains of the previous three years to 16 percent in 2005.- C.A.R.’s Unsold Inventory Index averaged 3.3 months in 2005. Inventory levels are expected to rise moderately in 2006 but will remain low by historic standards, fueling continued price appreciation in the California market. - The interest rate for a fixed-rate mortgage (FRM) remained below 6 percent for much of 2005, only surpassing 6 percent in the last months of the year. For all of 2005, the FRM averaged 5.8 percent. In 2006, the interest rate for the FRM is projected to increase but remain low by historic standards in the low- to mid-6 percent range. - The interest rate for a one-year adjustable-rate mortgage (ARM) averaged 4.5 percent in 2005, finishing just over 5 percent at year-end. The interest rate for the one-year ARM is expected to remain within the low- to mid-5 percent range during 2006. - With home prices reaching record levels, more homebuyers extended themselves financially in 2005 by utilizing alternative loan products. The share of homebuyers who used adjustable-rate and hybrid loans increased from 11 percent in 2003 to 43 percent in 2005, while the share of fixed-rate loans dropped from 89 percent in 2003 to 57 percent in 2005. The last time more than 40 percent of homebuyers used adjustable-rate loans was in 1994. - Fannie Mae and Freddie Mac increased the single-family conforming mortgage loan limit from $359,650 this year to $417,000 in 2006, which could benefit more than 28,590 families in California. However, the increase in the loan limit is still far too low to benefit most homebuyers in California, as the median price of a home in California is 29 percent higher than the new loan limits. Nineteen counties in California have a median home price above the new limit. - Internet use by homebuyers and sellers continued to climb in 2005. Based on C.A.R.’s “Internet Versus Traditional Buyers Survey,” the percentage of homebuyers using the Internet increased from 56 percent in 2004 to 62 percent in 2005. - The share of sellers who used the Internet in their homeselling process surpassed 50 percent for the first time, rising from 47 percent in 2004 to 57 percent in 2005, according to C.A.R.’s “Survey of California Home Sellers.”
Leading the Way...® in California real estate for 100 years, the California Association of REALTORS® (www.car.org) is one of the largest state trade organizations in the United States, with more than 180,000 members dedicated to the advancement of professionalism in real estate. C.A.R. is headquartered in Los Angeles.
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Patriot Act extended.

With the U.S.A. Patriot Act set to expire at the end of 2005, the Senate decided on December 21 to extend the Act for six months so the House and Senate could make revisions to the Act next year. The House voted to reauthorize the Patriot Act for four years before it adjourned for the holidays the prior week.