A home appraisal determines the value of your property by assessing comparable sales of similar properties in your neighborhood. A home appraisal is the estimated value of a home property by a licensed appraiser. An appraisal is made by inspecting your home, taking into account factors including the square footage and the asking price of comparable properties in your home’s neighborhood.
An appraisal is important for a mortgage lender like a bank or a mortgage broker—to determine the value of the property that a borrower currently owns or is trying to buy. Common reasons for ordering a home appraisal include refinancing a home’s mortgage or securing a loan to buy a house. You might need a bank loan to help pay your mortgage or contribute to the down payment of a house.
Private mortgage lenders usually require a home appraisal to weigh the home’s value against the size of the loan to the homebuyer. Federal institutions like the Federal Housing Administration (FHA) or the US Department of Veterans Affairs also provide home loans, which require home appraisals as part of the application process.
Real Estate Appraisal vs. Home Inspection: What’s the Difference?
There are several differences between a real estate appraisal and a home inspection, some of which include the following.
• Value vs. Condition: The purpose of a home appraisal is to determine an appraised value of the property, while a home inspection is to determine the home’s condition. While the condition of a home can contribute to or detract from its value, a home appraiser and a home inspector are looking for slightly different things. A home inspector will look at the condition of the home more closely than the appraiser, often looking for foundational or structural abnormalities.
• Market Comparison: A home appraisal determines the fair market value of the home by comparing it with comparable homes on the real estate market. Home inspections do not take the market or comparable homes into consideration.
• Appraisals are mandatory for a loan: Home appraisals are a mandatory phase of the home buying process and as such the mortgage lender will schedule the appraisal. A home inspection is more for the benefit of the homeowner and is not mandatory to secure a loan from a lender.
Who Appraises a Home?
Home appraisals are conducted by a licensed, third-party home appraiser. The lender is responsible for scheduling a home appraisal with an appraiser who has no connection to the lender, the buyer, or the seller.
The homebuyer, homeowner, or loan borrower is responsible for the appraisal costs as part of the closing costs of the home. A home appraisal can take anywhere between 20 minutes to two hours, depending on the size of your home. Once the appraiser has made their valuation, the appraiser will write a written report containing the home’s appraisal value that outlines how the determination was made.
How Does a Home Appraisal Work?
Home appraisals are used to secure a loan from a financial institution for a mortgage or down payment for a home purchase. They are ordered by the same financial institution when you’re refinancing your mortgage. Here is a brief overview of the process of a home appraisal.
1. Your appraisal is scheduled. The lender must run an appraisal to determine a fair market value for a property to determine your loan. The applicant must pay for the cost of the appraisal, and the appraiser cannot have a personal connection to the financial institution or the buyer, seller, or owner of the home.
2. The appraiser visits the home. An appraiser will visit your home and assess its size, location, condition, and added elements of value to determine a fair market value for the house. Your appraisal may take from 20 minutes to two hours.
3. The appraiser writes a report. Your appraiser will write a full report describing what they found in the home assessment. They will also include data on the value of comparable properties in the area. They will assign a fair market value to the house.
4. Your loan is granted or denied by the lending institution. If you’re trying to secure a loan to buy a house and the appraisal valuation comes back less than the selling price, the financial institution may deny your loan. Your loan will be granted if the valuation of the house meets the agreed-upon purchase price, or is greater than the purchase price. The lender will compile a closing disclosure that enumerates your down payment, closing costs, or the terms of your mortgage.
What Does an Appraiser Look For?
To appraise a home, the homeowner hires a third-party home appraiser to run an appraisal report of a home by inspecting and assessing the property. A property assessment is similar to a home inspection, but an appraiser will additionally take the sales prices of comparable homes—or comps—into account. To determine the value of the property against similar homes, an appraiser assesses the following:
• Square footage
• The physical condition of a home (including appearance, cracks, water damage)
• The structural integrity of the home
• Quality of landscaping around the home
• The home’s number of bedrooms and bathrooms.
• Any amenities or renovations like fireplaces, swimming pools, lighting, plumbing, and finishes such as hardwood floors or marble countertops
Tips on Preparing for a Home Appraisal
Whether you’re a home buyer or a homeowner looking to refinance your mortgage, it’s important to prepare for your residential appraisal. Getting a low appraisal can mean having a higher loan-to-value ratio, which can affect the interest rates of your loan.
1. Review the market. If you’re looking to secure a loan for a new home, you should review recent sales of other homes in the neighborhood of the home you want to buy. This can give you an idea of how your desired property might be appraised.
2. Examine your desired home’s state of repair. Examining the state of repair of your desired home can help you plan ahead and budget for necessary repairs or renovations.
3. Assess the condition of your house. If you’re a homeowner looking to refinance your mortgage, you want to make sure that your house is in the best condition it can be before the inspection. Make any necessary repairs to your home prior to inspection, paying particular attention to painting and patching walls, checking all light switches and wall outlets work, and repairing roofs and gutters.
4. Provide documentation. Provide copies of your home’s previous appraisals to the home appraiser, and keep documents of all home improvements made and the attached costs.
What Does an Estate Lawyer Do?
People spend their entire lives acquiring an “estate.” An estate can be large or small. It consists of savings, checking, and any investment accounts a person may have, as well as all property they own – including moveable and moveable property. Most people have “movable property.” Moveable property is anything a person owns- a mobile home, furniture, paintings, a car, a coin collection, their clothing and so on. Those people who own their homes rather than rent possess “Immovable property.” Immoveable or “real” property refers to land and to permanent structures (homes, barns, etc.) built on that land. After working so hard to develop an estate (even if you weren’t really aware that that’s what you were doing!) it would be an absolute tragedy to see some or all of it pass out of your family’s hands once you pass away.
Drafting a will
One of the main functions an estate lawyer performs is to help a client draft his or her will. A will is imperative in this day and age. If you don’t put down in writing where you want every single bit of your estate to go- from moveable property to immoveable property – a court in your state will decide it for you… and charge your heirs a great deal of money (it could run into the thousands of dollars) for the privilege. It will also take considerable more time than if you leave a will.
Creating a trust
An alternative to a will is to create a trust. With a trust, all of your assets are placed into an account, and you then appoint a “trustee” – a person whom you trust – who will disburse the funds when appropriate. A trust is important if there are young children involved. The funds they are to inherit can be disbursed when they reach a certain age, rather than when they are too young to properly handle the money. An estate lawyer, if so commissioned, can also act as a “protector” of the trust if desired.
Advanced Health Care Directives
More familiarly known as a “Living Will,” this document ensures that your wishes will be adhered to – regarding your own health – should you suffer an accident that leaves you incapacitated, or if you develop a disease such as Alzheimer’s for example, which will affect your ability to make decisions for yourself about resuscitation, for example.
When a person passes away, the estate must be divided as he or she wished (if a will or trust was created) or how the court wishes (if there was no will or trust). This is called probate. Probate is a legal process that has to go through the Court (and of course, fees have to be paid to the Court).
An Estate Lawyer Gives You Peace of Mind
53% of people living South Weber Utah have a will. That is an incredibly low percentage. Many young people do not bother with wills, as they did not bother with health insurance. However, accidents happen every day and it is imperative that even young people plan for the future and every eventuality. An estate lawyer can help.
An executor is the person responsible for managing the administration of a deceased individual’s estate.
Obligations can vary from state to state and the size of the estate can determine the responsibilities that will be needed. The executor is either named in the will and if no will is left, the courts can name an executor. The time necessary to complete an estate will be determined by the size of the estate and the location of the assets left in the state. An executor may be required to perform some or all of the duties listed below:
• Locate documents: The determination of a will and the delivery of it to the courts will be necessary. If a copy exists, the attorney who drew the will may have the original. The original should be delivered to the court. A certified copy of the death certificate is also required.
• Tax returns:. The executor must file the final tax return for the deceased. Taxes may include estate taxes and income taxes.
• Probate: If there is a will, the court will grant you letters testamentary. If there is no will, you will receive letters of administration. The court will instruct you as the executor when to begin complying with the probate.
• Notice to interested parties: Notify the beneficiaries of the will as well as any potential heirs. In addition a notice for potential creditors in a newspaper near where the deceased lived should be placed.
• Payment of claims by creditors: Once the creditors are identified, debts will need to be paid from the estate’s funds. Debts can include funeral expenses, probate and administration fees and taxes as well as any valid claims filed by creditors.
• Distribution: Once the creditors’ claims are clear, the executor is responsible for making sure the beneficiaries receive the assets named in the will.
• Legal counsel: Although it is not a requirement, hiring an attorney can help reduce time and exposure to liability. In many states the executor can be held legally responsible for the value of the assets held in the estate. Many attorneys specialize in this area and locating a competent one is fairly easy.
• Record keeping: It is very important to keep accurate records of everything you do. A final accounting to the court and the beneficiary must be completed before the estate can be finalized. The accounting should include any distributions and expenses as well as any income earned by the estate since the deceased died.
• Court accounting: Once the final accounting is approved by the beneficiaries and the court, the court will close the estate.
• Management:. As executor, you will need to prepare a list of the deceased’s assets and liabilities. One of the executor’s jobs is to protect the property from loss and to insure the assets are kept safe. An appraiser may be needed to provide a value of a specific asset. If a business is part of the assets, it will need to also be managed. The executor is allowed compensation for performing these duties.
Things Every Buyer Needs – To Close A Commercial Real Estate Loan
Sellers and their agents often express the attitude that the Buyer’s financing is the Buyer’s problem, not theirs. Perhaps, but facilitating Buyer’s financing should certainly be of interest to Sellers. How many sale transactions will close if the Buyer cannot get financing? This is not to suggest that Sellers should intrude upon the relationship between the Buyer and its lender, or become actively involved in obtaining Buyer’s financing. It does mean, however, that the Seller should understand what information concerning the property the Buyer will need to produce to its lender to obtain financing, and that Seller should be prepared to fully cooperate with the Buyer in all reasonable respects to produce that information.
Basic Lending Criteria
Lenders actively involved in making loans secured by commercial real estate typically have the same or similar documentation requirements. Unless these requirements can be satisfied, the loan will not be funded. If the loan is not funded, the sale transaction will not likely close.
For Lenders, the object, always, is to establish two basic lending criteria:
• The ability of the borrower to repay the loan; and
• The ability of the lender to recover the full amount of the loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, in the event the borrower fails to repay the loan.
In nearly every loan of every type, these two lending criteria form the basis of the lender’s willingness to make the loan. Virtually all documentation in the loan closing process points to satisfying these two criteria.
There are other legal requirements and regulations requiring lender compliance, but these two basic lending criteria represent, for the lender, what the loan closing process seeks to establish. They are also a primary focus of bank regulators, such as the FDIC, in verifying that the lender is following safe and sound lending practices. Few lenders engaged in commercial real estate lending are interested in making loans without collateral sufficient to assure repayment of the entire loan, including outstanding principal, accrued and unpaid interest, and all reasonable costs of collection, even where the borrower’s independent ability to repay is substantial. As we have seen time and again, changes in economic conditions, whether occurring from ordinary economic cycles, changes in technology, natural disasters, divorce, death, and even terrorist attack or war, can change the “ability” of a borrower to pay. Prudent lending practices require adequate security for any loan of substance.
Documenting The Loan
There is no magic to documenting a commercial real estate loan. There are issues to resolve and documents to draft, but all can be managed efficiently and effectively if all parties to the transaction recognize the legitimate needs of the lender and plan the transaction and the contract requirements with a view toward satisfying those needs within the framework of the sale transaction. While the credit decision to issue a loan commitment focuses primarily on the ability of the borrower to repay the loan; the loan closing process focuses primarily on verification and documentation of the second stated criteria: confirmation that the collateral is sufficient to assure repayment of the loan, including all principal, accrued and unpaid interest, late fees, attorneys fees and other costs of collection, in the event the borrower fails to voluntarily repay the loan.
With this in mind, most commercial real estate lenders approach commercial real estate closings by viewing themselves as potential “back-up buyers”. They are always testing their collateral position against the possibility that the Buyer/Borrower will default, with the lender being forced to foreclose and become the owner of the property. Their documentation requirements are designed to place the lender, after foreclosure, in as good a position as they would require at closing if they were a sophisticated direct buyer of the property; with the expectation that the lender may need to sell the property to a future sophisticated buyer to recover repayment of their loan.
Top 10 Lender Deliveries
In documenting a commercial real estate loan, the parties must recognize that virtually all commercial real estate lenders will require, among other things, delivery of the following “property documents”:
1. Operating Statements for the past 3 years reflecting income and expenses of operations, including cost and timing of scheduled capital improvements;
2. Certified copies of all Leases;
3. A Certified Rent Roll as of the date of the Purchase Contract, and again as of a date within 2 or 3 days prior to closing;
4. Estoppels Certificates signed by each tenant (or, typically, tenants representing 90% of the leased GLA in the project) dated within 15 days prior to closing;
5. Subordination, Non-Disturbance and Attornment (“SNDA”) Agreements signed by each tenant;
6. An ALTA lender’s title insurance policy with required endorsements, including, among others, an ALTA 3.1 Zoning Endorsement (modified to include parking), ALTA Endorsement No. 4 (Contiguity Endorsement insuring the mortgaged property constitutes a single parcel with no gaps or gores), and an Access Endorsement (insuring that the mortgaged property has access to public streets and ways for vehicular and pedestrian traffic);
7. Copies of all documents of record which are to remain as encumbrances following closing, including all easements, restrictions, party wall agreements and other similar items;
8. A current Plat of Survey prepared in accordance with 2011 Minimum Standard Detail for ALTA/ACSM Land Title Surveys, certified to the lender, Buyer and the title insurer;
9. A satisfactory Environmental Site Assessment Report (Phase I Audit) and, if appropriate under the circumstances, a Phase 2 Audit, to demonstrate the property is not burdened with any recognized environmental defect; and
10. A Site Improvements Inspection Report to evaluate the structural integrity of improvements.
To be sure, there will be other requirements and deliveries the Buyer will be expected to satisfy as a condition to obtaining funding of the purchase money loan, but the items listed above are virtually universal. If the parties do not draft the purchase contract to accommodate timely delivery of these items to lender, the chances of closing the transaction are greatly reduced.
Planning for Closing Costs
The closing process for commercial real estate transactions can be expensive. In addition to drafting the Purchase Contract to accommodate the documentary requirements of the Buyer’s lender, the Buyer and his advisors need to consider and adequately plan for the high cost of bringing a commercial real estate transaction from contract to closing. If competent Buyer’s counsel and competent lender’s counsel work together, each understanding what is required to be done to get the transaction closed, the cost of closing can be kept to a minimum, though it will undoubtedly remain substantial. It is not unusual for closing costs for a commercial real estate transaction with even typical closing issues to run thousands of dollars. Buyers must understand this and be prepared to accept it as a cost of doing business.
Sophisticated Buyers understand the costs involved in documenting and closing a commercial real estate transaction and factor them into the overall cost of the transaction, just as they do costs such as the agreed upon purchase price, real estate brokerage commissions, loan brokerage fees, loan commitment fees and the like.
Closing costs can constitute significant transaction expenses and must be factored into the Buyer’s business decision-making process in determining whether to proceed with a commercial real estate transaction. They are inescapable expenditures that add to Buyer’s cost of acquiring commercial real estate. They must be taken into account to determine the “true purchase price” to be paid by the Buyer to acquire any given project and to accurately calculate the anticipated yield on investment.
Some closing costs may be shifted to the Seller through custom or effective contract negotiation, but many will unavoidably fall on the Buyer. These can easily total tens of thousands of dollars in an even moderately sized commercial real estate transaction in the $1,000,000 to $5,000,000 price range. Costs often overlooked, but ever present, include title insurance with required lender endorsements, an ALTA Survey, environmental audit(s), a Site Improvements Inspection Report and, somewhat surprisingly, Buyers attorney’s fees.
For reasons that escape me, inexperienced Buyers of commercial real estate, and even some experienced Buyers, nearly always underestimate attorneys fees required in any given transaction. This is not because they are unpredictable, since the combined fees a Buyer must pay to its own attorney and to the Lender’s attorney typically aggregate around 1% of the Purchase Price. Perhaps it stems from wishful thinking associated with the customarily low attorney’s fees charged by attorneys handling residential real estate closings. In reality, the level of sophistication and the amount of specialized work required to fully investigate and document a transaction for a Buyer of commercial real estate makes comparisons with residential real estate transactions inappropriate. Sophisticated commercial real estate investors understand this. Less sophisticated commercial real estate buyers must learn how to properly budget this cost.
Free Initial Consultation with Lawyer
It’s not a matter of if, it’s a matter of when. Legal problems come to everyone. Whether it’s your son who gets in a car wreck, your uncle who loses his job and needs to file for bankruptcy, your sister’s brother who’s getting divorced, or a grandparent that passes away without a will -all of us have legal issues and questions that arise. So when you have a law question, call Ascent Law for your free consultation (801) 676-5506. We want to help you!
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506