By the time most of my Northern Virginia real estate clients reach me, I know that they have been doing plenty of research on the web. Most sites are designed to cover general topics and do a good job, but a real powerhouse site has hit the Internet and it is going to get every home buyer’s attention.
That hot site is ConsumerFinance.gov , set up by the Consumer Financial Protection Bureau, a U.S. Government Agency.
The CFPB site is very clean, contemporary and doesn’t resemble typical U.S. government web sites ~ I like it from a geeky web design point of view.
In January 2014 strict new mortgage lender rules take effect to ensure that home buyers using mortgages meet minimum standards. For example: that home buyers have the ability to repay their loans, or meet the highest new standard for a Qualified Mortgage. ConsumerFinance.gov covers a ton of information carefully showing consumers what to expect from their lender.
These tips for homebuyers…
aren’t so simple
Now, I write about real estate from an active Realtor point of view because I work in the trenches with people actually helping them buy and sell homes. Maybe I don’t have construction mud on my face, but I understand making offers, negotiations, appraisals, contingencies, and the process of a typical real estate transaction.
Yes, a Realtor who does not originate mortgages.
As I Googled exciting real estate topics like what to expect in 2014, I kept coming up with articles about new mortgage regulations and what consumers should expect from their mortgage lender.
One article that caught my eye was the CFPB’s Tips for homebuyers (pdf) which fit everything nicely onto one page.
- Only you can decide how much you are comfortable paying…
- Use your market information
- Get reliable help
- Watch those fees
- Know you need to acknowledge your Intent to Proceed
What caught my attention was Tip #2: Use your market information.
A new rule mandates that consumers get a copy of the property “appraisal” at least three business days before closing. Appraisals are valuation reports generated by licensed appraisers in Virginia where I work, and our real estate sales contract specifically states an appraisal shall be in writing. A typical appraisal will compare “your house” to other similar or comparable homes nearby that have sold recently. Using complex formulas to adjust for square footage, bathrooms or age of the home, a licensed appraiser will determine an opinion of the current market value of the property.
Appraisal firms are at “arm’s length” from mortgage lenders so typically the low bidder gets the assignment.
A low appraisal requires swift attention!
I have always recommended to my real estate clients to include an Appraisal Contingency in their offer ~ even with all-cash transactions.
This is a smart strategy, and I write them so the sales contract will be contingent for 21 days to obtain an appraisal. Why so long?
It takes a while to get an appraisal because there are many stops for your sales contract before it reaches the appraiser. (I) will send the ratified contract to the mortgage lender, they then send it to an outfit that assigns the job to a licensed appraisal firm, they assign it to a specific appraiser and then she visits the property to measure and take specific notes. She then compiles specific local data to complete her appraisal – in her name. It is then reviewed by her firm before being sent back to your mortgage processor.
Remember, this isn’t like a report from one of those free home evaluation sites or a Zestimate of value!
Hopefully this appraisal gets back to your processor in 21 days but know that (my) appraisal contingency actually says it shall automatically extend unless the Seller gives notice demanding the contingency be satisfied. (Am I getting too detailed? Let me know if you have questions)
The CFPB tip actually gives you this advice: “If the appraisal is well below the price you offered to pay, you may want to consider renegotiating the price or reviewing the appraiser’s work carefully to understand how the appraiser arrived at the estimated value.”
Hey, that’s spot-on advice from a copywriter hired by the CFPB!
But, take it from a real estate guy in the trenches, if you drop that bomb three days before closing you should expect the sh*t to hit the fan. Successful real estate negotiations specifically if the price needs to get renegotiated don’t work out well at the 11th hour and can cause the whole deal to fall apart.
My strategy is to get the appraisal back as quickly as possible so my clients know if the appraised value is at or is below the contract sales price.
If it is at or above the contract sales price then that means you negotiated well from the get-go. But, if it is below the agreed upon sales price then you have decisions to make depending upon the appraisal contingency in your sales contract.
The new CFPB rule is smart to allow you to get a copy of the appraisal, but if you have been kept in the dark until 3 business days prior to closing then you (the consumer) have a new set of complicated issues. That Tip #2 actually requires you to be more proactive than the copywriter has summarized it in that neat little paragraph.
Personally, I have sat down with my clients for more than twenty two years to discuss the home buying or selling process, covering fees, answering questions and expectations, discussing risks, and giving an overview of the current market or market they are interest in. It’s information, but packed with tips for homebuyers.
Tip #3: Get reliable help ~ that’s just common sense.
In my opinion, you should be seeking out better-than-just-reliable-help!