Things that Estate Sellers and Buyers Need to Know: Appraisals
By: Tilden Moschetti
Home selling and buying a home are legal matters that should never be taken lightly. With all the paperwork involved, the buying and selling process can be quite complicated. This is because negotiating and buying or selling property, especially in California, is quite expensive.
Legal advice from expert real estate lawyers is necessary, whether you are planning to sell your home or are home buying for the first time. Buying and selling a home is not easy. With all the money involved, exercising diligence is vital. Additionally, a real property lawyer can help brief you on state law which you must not take for granted.
Matters Related to a Real Estate Transaction
Whether you are planning to sell a property or are an aspiring first-time homeowner, there are several things that you must consider. Real estate professionals are there to help with your home search or home selling process. As you would agree, no home buyer and seller would want to be at a disadvantage.
For one, when buying or selling property, clarify the dual agency of your real estate agents. A licensed real estate agent can give you access to homes in the local multiple listing service, but you would want to be clear with all arrangements involving your sales agent. Buying or selling real estate would also involve a home inspector and various inspections, and the closing process and closing costs. Be prepared for these.
Real estate buyers and sellers should also be familiar with terms in the real estate sales contract, such as an appraisal or contingency. Appraisal contingencies, for example, are contingent on the real estate property being appraised at the price stated in the real estate contract. But what exactly are appraisals?
There is an idea stating that you make money not only when selling, but also when buying. Since it’s all about the numbers, both home buyers and sellers gain from real estate transactions. Taking into account the purchase price and anticipated return of investment, you make money at the point of purchase. The investment has to make financial sense now, given the asking price and the expected return on investment.
The value of real estate property in California is now calculated from actual numbers, unlike before when high prices were simply justified by appreciating-by-the-month values. Keep in mind that in borrowing money for a real estate investment, lenders become an investment partner. An appraiser is meant to protect the best interests of both parties: the lender and the borrower.
What is Being Calculated?
Appraisers would usually include these in their calculations:
1) Cap Rates
A city is often divided into several small pockets of real estate markets. This means that property in one pocket can have a higher value than a similar one in the next neighborhood, although they are within the same larger boundaries. This also implies that within a pocket, similar property type investments should yield a cap rate or net operating income divided by the market value ratio that is reasonably similar. (A note on real estate brokerage: While a real estate broker will often market properties at their market values, there are no restrictions on how much the seller can ask. If the selling price is close to the local real estate market value, you are getting a good investment).
While rent is ideally at market value, it could be under or over such. Note that the relationship between the subject property’s rent and the market rent can impact tenant turnover and the rate of occupancy and the tenant turnover. Through estoppel certificates, tenants renting are often asked to verify the terms and amount of rent. Real estate attorneys can explain this to you in more detail.
Money and Time
The creditor who you apply and negotiate with for a mortgage loan may charge a flat fee if the appraiser is on staff and not from an independent contractor. Additionally, depending on the creditor’s policy, specific designations could be required from an appraiser to ensure the quality of their opinion.
The cost of appraisals varies, depending on the purpose and the size of the property. Real estate lawyers can discuss this further. On top of this, they also take time. Appraisals for multifamily and commercial property are generally lengthier than those for residential ones. An escrow agent would likely estimate 60-90 days escrows.
At Moschetti Law Group, our practice serves the needs of Founders by providing real estate law and real estate syndication attorney services to Founders. Whether you are the Founder of a real estate empire or building a business and need assistance with purchase and sales, real estate transactions, or real estate litigation, we serve Los Angeles County, eastern Ventura County, and North Orange County from our office in Calabasas. We also have a primary focus on helping Real Estate Syndication Founders throughout the United States with forming their syndication, understanding crowdfunding, private placement memorandums, and operating agreements.