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Seattle Real Estate Blog

Local real estate news in the Greater Seattle market: Home prices and trends in Seattle, on the Eastside, and across the Puget Sound region. Written by , Managing Broker with Coldwell Banker Danforth and State Director for Washington REALTORS.

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March 26, 2015

Real Estate: What is a Deed?

deed

What is a Deed?

Real Estate Terms and Definitions:
Deed

Quick Definition: A legal document that conveys ownership of a property from seller to buyer.

In-Depth Explanation of Deed

A deed is the document that has the names of the owners who are selling a property and the names of the new owners who are buying the property.  It has a legal description of the property being sold.  The person selling/transferring the property will sign the deed to verify that they intend to transfer it.  The signed deed is written evidence of the transfer.

There are multiple kinds of deeds.  The simplest form is a quitclaim deed.  A quitclaim deed allows one person with a claim to a property to "quitclaim" it to some other entity.  It doesn't necessarily say how much that person's claim is, it merely says "Whatever portion of this property I have the rights to, I give those rights away to this new entity."  Quitclaims don't relieve their writers of any debts they may have become party to regarding the property, they merely assign the property claim elsewhere.  They're often used to clear up confusion when certain heirs to a property are in question.  To remove any clouds on the title, previous owners, or couples going through a divorce, may file a quitclaim deed to make it clear who has sole rights to the property.

Warranty deeds are stronger than quitclaim deeds because they include a promise of clear title.  They are usually accompanied by title searches and title insurance, because the writer of a warranty deed would be liable to the transferee if there were later found to be a separate claim on the property.  The warranty deed says that the transferor has a title that is free of financial liens or other claims of ownership.

Grant deeds are somewhere in the middle.  They include the basics of a quitclaim deed, but they also tell the transferee that the transferor hasn't previously deeded their claim to someone else.  There are cases where individuals quitclaim their property multiple times, creating clouds on title.  The grant deed states that the claim being transferred is unencumbered, unless specifically stated otherwise in the grant deed.

Deeds should be recorded with your local municipality, usually your county.  Although in some cases unrecorded documents are still legally binding, recorded documents are always better for everyone's ability to reliably transfer real estate ownership interests.

How Deed could affect your real estate transaction:

In the vast majority of cases, you'll only deal with the deed at your closing table, and that will just be to sign it.  Most transactions will include title insurance for the buyer, and often for the lender as well.  The title company will search to make sure there are no clouds on title--it's free and clear.  Then the warranty deed can be signed by the seller/transferor to clearly convey the interest in the property.

It can happen that the title search turns up clouds.  There could be financial liens against the property that were unreported, or the seller may have granted someone a claim to the property with a quitclaim at some time in the past.  These issues can slow down the sale process, and in some cases scuttle the transaction altogether.  

It's important for real estate agents who list properties for sale to have a preliminary title search done as they begin preparing the property to be listed.  This will give the sellers an early heads up if there are clouds on title and allow them to be fully prepared to sell the home when the time comes to put it on the market.

Want to know more about deed?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your deed questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 25, 2015

Real Estate: What is a Conventional Loan?

conventional loan

What is a Conventional Loan?

Real Estate Terms and Definitions:
Conventional Loan

Quick Definition: Any loan not insured or guaranteed by a government agency. (Refers to loans made by institutional lenders.)

In-Depth Explanation of Conventional Loan

There are a lot of ways to explain a conventional loan, but the easiest way is to say what a conventional loan is not.  It is not a government insured loan like a VA or an FHA loan.  Mortgages/loans made by lenders that are not guaranteed or insured by a government agency like the VA or FHA are called conventional loans to signify that fact.  They're just "regular" loans.

FHA and VA loans are very popular because they have low down payment options.  VA loans (used by current and former military members and those with employment connections to the defense department) have "no money down" options which are often referred to as 100 percent financing.  FHA loans are often financed with 3.5 percent down payments.  The government agencies that insure them have special mortgage insurance options that sometimes are paid by the borrowers upfront to safeguard the agency against losses from default.

Conventional loans are sometimes confused with conforming loans.  Conforming is a different subject. Conforming loans are those that fit within federal guidelines that allow for them to be resold to agencies like Fannie Mae and Freddie Mac.  A loan must "conform" to the standards that make it fit within the safety guidelines that FNMA and FHLMC set up to safeguard their investments.  We often refer to conforming loan limits, which cap the total size of the mortgages.  These loan limits are often different based on geography.  A conforming loan might be capped at $400,000 in one city, but be able to go as high as $600,000 in a high cost city and still be conforming.

How Conventional Loan could affect your real estate transaction:

The seller of a home will often want to know about the buyer's financing.  In a purchase contract, you may have a financing addendum that will detail the kind of mortgage you're getting as a buyer.  The addendum may require you to tell the seller if you're getting a conventional, VA, FHA, or other kind of mortgage.  I will also often ask you how much of a down payment you're making.

Sellers will take this information into account when deciding whether or not to accept an offer.  There is no right or wrong loan type, and any particular home seller may look at them differently.  It's just more information for the sellers to analyze.

Conventional loans, in some cases, may have less stringent appraisal processes.  Every situation is different, but in many cases we see appraisers for FHA and VA do thorough inspections of homes and call for repairs to be done by the homeowners before closing.  In our experience, that's much less likely to happen with an appraiser for a conventional loan.

Want to know more about conventional loan?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your conventional loan questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 18, 2015

Real Estate: What is a Contingency?

contingency

What is a Contingency?

Real Estate Terms and Definitions:
Contingency

Quick Definition: A Contingency is condition put in a contract that must be met for the contract to be binding. Common contingencies include financing, inspection, and others which protect buyers of real estate and their earnest money.

In-Depth Explanation of Contingency

Contingencies, in general, are conditions of a contract.  They need to be fulfilled for the contract to go through.  In real estate, contingencies can be put in place that protect buyers and sellers from financial or other harm.  Contingencies are written so that all parties to the real estate contract understand the they need to fulfill certain obligations before the real estate closing can happen.

The most common contingencies you'll hear about are financing contingencies and inspection contingencies, although there are many others.  Financing contingencies can be written in many different ways, but the overall point is to make sure the buyer properly applies for financing, and to protect that buyer from financial loss in case the financing is not available.

Financing contingencies will often have a timeline in which the buyer must apply for a mortgage.  The terms of the financing are often disclosed to the seller: down payment, type of loan, etc.  The seller uses this information to determine the strength of the buyer's ability to purchase the property.  If the buyer follows the terms of the contract, and the lending institution can't deliver the funds to make the home loan possible, the buyer usually has an option to get out of the purchase contract without losing earnest money.

Inspection contingencies work in a similar way.  They will have a timeline in which the buyer can inspect the property (which should be done with a professional inspector), and then respond to the seller.  The buyers can accept the property in its current condition, ask the seller for repairs or a monetary credit, or disapprove the inspection and end the contract.  These contingencies can vary based on timelines and disclosures necessary to enforce them, so be sure to consult with your Realtor and/or a real estate attorney to make sure you understand your contract.

How contingencies could affect your real estate transaction:

Contingencies are the basis for contracts going forward, or contracts dying.  Buyers use them as their safeguards.  If you're buying a home, you'll need to pay strict attention to the timelines on your contingencies.  Have you applied for a mortgage in the right amount of time?  Buyers should get pre-approved before even visiting properties for sale, but the contingency may allow more time.

Have you inspected the property, and provided a written response notification to the seller within the correct amount of time?  If not, your earnest money deposit may become forfeitable to the seller in case you don't close on the home.  

If you're selling your current home to buy another, you may have a property sale contingency or a pending sale contingency that allows you to rescind the purchase of the 2nd home if the 1st doesn't go through.  There are a wide range of contingencies, and you should be coordinating with your Realtor to make sure everyone is on the same page.

Want to know more about contingencies?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your contingency questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 18, 2015

Seattle Condo Sellers: You CAN Always Get What You Want (100% List Price)

The Rolling Stones didn't know about today's market for Seattle condos.  For the average condo seller in Seattle, you can always get what you want, if what you want is full price on your condo listing.

The sale price to list price ratio for condos in Seattle this past month rose to 100 percent.  That means the average condo that sold last month got full asking price.  Take into account that many of these sales were homes that had been on the market more than a few weeks (condos that probably sold at less than asking price), and it's likely that two out of three condo sellers who get a sale in the first week or two are receiving at or above list price offers.

Seattle Condo Sales Median Prices, Sale to List Price Ratio

Seattle condo sales market stats

Condo prices have risen 27.5 percent over the past two years.  Tight inventory, rising prices, and a great employment market have been driving condo sales and there seems to be no slowing.  

The median sale price of a Seattle condo in January was $318,750, up from $250,000 in January two years ago.  Without much new inventory coming on the market, it seems inevitable that prices will continue to rise in the short term.

Prices in the downtown Seattle core were significantly higher, with last month's median condo sale coming in at $500,000.  The downtown, Belltown, Pioneer Square, and Denny Triangle neighborhoods seem particularly difficult to find available condos in these days. 

While there are a large number of new listings that sell in the first week on the market, Seattle condo buyers shouldn't get discouraged by the bidding wars and the competition.  There are still new listings each week that sit for a while and become opportunities for discounts and negotiations on prices.  

For Seattle condo owners thinking about selling their homes right now, though, it's a pretty ideal time.  Buyers are chomping at the bit, and the odds say that you'll sell quickly and for exactly the price you ask (as long as you price it based on market values).  

Get that condo on the market and get what you want.  We have buyers waiting.

- Search every real estate listing from every company in Greater Seattle on SeattleCondo.com -

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© SeattleCondo.com
Sam DeBord, Managing Broker, REALTOR®, Coldwell Banker Danforth

Director, Seattle King County REALTORS® - State Director, WA REALTORS®
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Statistical source if not otherwise noted is NWMLS. The Northwest Multiple Listing Service did not compile or publish this information.

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March 17, 2015

Real Estate: What is a Comparative Market Analysis? CMA

comparative market analysis

What is a Comparative Market Analysis (CMA)?

Real Estate Terms and Definitions:
Comparative Market Analysis

Quick Definition: A survey of comparable homes recently sold or currently on the market used to help determine a fair market value for a seller's property.

In-Depth Explanation of Comparative Market Analysis

A CMA is usually delivered by a real estate agent or broker.  It is a report, a Comparative Market Analysis, of the current market value of an individual property.

The real estate agent will look at the subject property first.  After determining its location, condition, features, and unique characteristics, the agent will look for similar properties in similar locations to make relative value calculations.

CMAs can involved sold homes, pending sales, and homes currently on the market.  Comparables are often referred to as "comparable sales", but comparable active and pending listings can also give some insight into a property's value.

The agent will look at each comparable property, weigh its pros and cons in comparison to the subject property, and then make valuation adjustments.  By looking at multiple sold properties of similar size, characteristics, and locations, the agent can provide a very accurate picture of what the subject property would likely sell for if it were put up for sale.

Comparative Market Analysis reports are one of the most accurate ways to find your home's value if you're thinking about selling.  Automated Valuation Models (AVMs) found online can give rough estimates, but they often miss the mark by 10 percent to 20 percent.  That's far too wide of a margin of error for a homeowner to reliably trust.  To be reliable, the report must be done by someone who has actually seen the property in person and can verify its unique details and condition.

Homeowners can also get an appraisal to find out their home's value.  The appraisal report will be very similar to the CMA.  Appraisers usually charge a few hundred dollars for an appraisal report, whereas real estate agents will likely do the Comparative Market Analysis for free, with the hope that the seller will list the home with them in the future.

How Comparative Market Analysis could affect your real estate transaction:

Getting a good CMA upfront is important.  Sellers shouldn't just guess at their home's value, or hope to get a certain price when selling.  Buyers are educated, and they only want to pay what a home is worth.  If sellers skip the CMA step and just choose a price based on "what I need to get" or "what seems reasonable", they risk losing marketing time and money by being listed at an unreasonable price.  They could also leave money on the table by not pricing the home high enough in a hot market.

Have your Realtor do a full Comparative Market Analysis before you decide to list your home for sale.  Make sure that the market conditions will fetch you a sale price that's effective for your situation.  Whether you need the proceed funds from the sale to buy another home, or you might be close to being underwater, it's essential that you know the true market value of your home before putting it on the market

Of course, CMAs aren't perfect.  There are plenty of homes that sit on the market for longer periods of time because the initial analysis of value wasn't right on.  Still, a CMA is the best way to prepare yourself for the likely selling price of your home, and to discuss the unique features of your home with your Realtor.  It will give you a chance to see a professional's insight into which features of your home truly bring value to the majority of buyers, and which don't.

Want to know more about comparative market analysis?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your comparative market analysis questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post
March 13, 2015

Real Estate: What is a Commission?

commission

What is a Commission?

Real Estate Terms and Definitions:
Commissions

Quick Definition: A fee paid to a real estate agent or broker for their services--sometimes a percentage of the sale price, but also as a different fee model

In-Depth Explanation of Commission

Real estate commissions are how real estate agents and brokers get paid.  They are a fee for the professional services that real estate agents provide to home buyers and sellers.  Commissions are not paid directly to the real estate agents.  They go to the brokerage that the agents work for, and are often split with the broker.  After the split, the agent's Errors & Omissions Insurance, Business & Occupations Taxes, and other transaction fees are taken from the commission before the remainder is paid to the agent, most often as an independent contractor.

Commissions vary widely, and are always negotiable.  While the most common commissions in our current market are calculated as a percentage of the sale price, there are a wide range of other options.  Flat fees, graduated percentages, and hybrids of a number of commission structures are all available to consumers and real estate pros as ways to make sure transactions have adequate representation and the representatives are compensated.

In most real estate sales, the sellers pay the commissions for both agents--their own (listing agent) and the buyer's agent (selling agent).  In this scenario, the seller signs a listing contract which states a commission amount that will be paid to the listing agent, and a portion to be shared with the buyer's agent, if one is party to the sale.  This situation can vary as well, though, so consumers should investigate what commissions they might owe to an agent or broker before entering into a contract. 

How Commission could affect your real estate transaction:

With commissions being negotiable, and it being illegal for real estate brokers or agents to "price fix" or set a "standard" commission rate in their market, it's always best to talk to the individual agent(s) you are interested in listing your home with to find out their commission structure. 

The commissions will, in most cases, be paid to the agents through the seller's proceeds from the sale of the home.  If there is not enough money in the proceeds to pay the commissions, a seller would still likely be personally responsible to make up the overage as the payment of the commission is part of the signed listing contract.

Home sellers should be aware that a real estate agent can earn a commission in some cases, even if the sale does not close.  If the listing agent brings a willing and qualified buyer to the seller, who agrees to the sale but later backs out without cause, the agent will have fulfilled his/her duty to the contract signed with the seller and the seller could potentially owe a commission.  This is another reason why it's important for home sellers to thoroughly read their contracts, and consider seriously whether or not they're ready to sell their home before it's time to put it on the market.

Want to know more about commission?

This post is for informational purposes only and is not legal advice. Buyers and sellers of real estate should not rely upon it to make decisions. Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your commission questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 13, 2015

Real Estate: What are Closing Costs?

closing costs

What are Closing Costs?

Real Estate Terms and Definitions:
Closing Costs

Quick Definition: All costs paid by the seller or buyer at the end of a transaction. This may include such items as title search and examiner fees, escrow, lawyer's fees, title insurance premiums, deed recording fee and transfer tax

In-Depth Explanation of Closing Costs

Closing costs in a real estate transaction come from a number of sources.  Taxes and fees due to government agencies, costs for escrow or attorney closing services, title search and title insurance fees, and real estate commissions are all part of the potential closing costs in a sale.

Closing costs can vary widely based on your location.  Taxes vary by region, individual service providers have different fee schedules, and real estate commissions, which are negotiable, vary by service model and the individual provider.  While buyers and sellers would like to get an estimate of closing costs online, it would be irresponsible for us to guesstimate a number that could change significantly for any individual home buyer or seller.

What we can provide is a breakdown of who pays most of the closing costs in a transaction.  In Washington, the escrow fee is usually split 50/50 between the buyer and the seller.  We use escrow for closings as opposed to attorneys in most cases.  Remember that what is "customary" can always change in your situation, so it's always best to read your contract, consult with your Realtor, and with a real estate attorney where necessary.  Sellers will usually pay for an owner's policy of title insurance.  This is in effect a protection for the buyers to ensure that the property can be legally transferred to them.  Washington home sellers pay a real estate excise tax as part of their closing costs.

Buyers will usually pay the numerous lender fees if they are financing the property.  Origination, discount, processing, underwriting, and many other fees will be a part of the lender closing costs.  Buyers should take into account the total fees, along with the interest rate and payments to determine the value of the mortgage they're being offered.  The Annual Percentage Rate, or APR, is often used to combine these fees and the interest rate into one measure of lending value.

Buyers will also usually pay for a title insurance policy for their lender.  This insures the lender that in case the property can't be legally sold, the lender can recoup the costs of the loan which was granted for the property.

How Closing Costs could affect your real estate transaction:

Closing costs can affect a buyer's cash available to close a home.  They can't be "wrapped into the loan" in many cases as you could in a refinance.  This means that the buyer needs the cash to pay for the closing costs and the down payment, or the seller will need to credit some of their proceeds from the sale to the buyer.

Whether or not a seller is willing to give the buyer a credit is dependent on a number of factors.  The financing being used must allow a seller credit.  The buyer needs to give the seller a reason to offer such a credit as well.  The closing cost credit is a net loss to the seller.  In a buyer's market where sellers are more motivated, sellers may agree to the credit as a concession.

In cases where the sellers have the upper hand in the negotiation (an inventory-starved market), buyers will often have to increase the purchase price they're willing to pay to make up for the closing cost credit that the seller is allowing for.  All parties should be aware, however, that the property still needs to appraise for the full purchase price to avoid financing issues.  The purchase price cannot be artificially inflated above market value just to make room for the seller to credit closing costs to the buyer.

Want to know more about closing costs?

This post is for informational purposes only, home buyers and sellers should not rely upon it to make decisions.  Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, attorneys, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your closing costs questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 11, 2015

Real Estate: What is an Assessed Value?

assessed value

What is an Assessed Value?

Real Estate Terms and Definitions:
Assessed Value

Quick Definition: The value placed on a property by a municipality for the purpose of levying taxes--the municipality's assessed value may greatly differ from the appraised value.

In-Depth Explanation of Assessed Value

Property tax assessments create an assessed value for a piece of real estate.  This is a value used to calculate your home or property's value, in relation to the rest of the real estate in your community.

An assessor from your local municipality (often your county) will regularly update the value that they attribute to your piece of real estate.  Based on market conditions, the condition of your property, and comparable recent sales in your property's proximity, the assessor will determine a rough estimate of the current market value today.

We're calling it a rough estimate because assessed values are notoriously inaccurate.  Real estate buyers often try to find the value of a home they're hoping to purchase by looking at the assessed value, but this isn't a very accurate way to evaluate real estate.  The tax assessment is a short, cursory examination of the home's attributes.  It's not nearly as intensive as a Comparative Market Analysis (CMA) done by a real estate broker, or an appraisal done by a licensed appraiser.

How Are Property Taxes Calculated Based on Assessed Value?

Property taxes calculations seem to be one of the most confusing topics about real estate, for consumers and professionals alike.  That's mostly because the way property taxes are calculated seems odd, or even illogical based on the other taxes we're used to paying.

Your local municipality has a budget.  It has a set number of expenses in its budget, which need to be paid through property taxes.  The amount the municipality can spend each year is often capped by local ordinances.

If your local county has a $1 million portion of its budget that is supported by property taxes this year, it will collect $1 million from its property owners.  Whether the overall market's real estate values have gone up 10 percent or down 10 percent in the past year, the county will still collect $1 million from the property owners.

That $1 million in spending liability will be divided up based on the value of each property owner's real estate in the county.  In a simplified example, the person who owns a $500,000 property (assessed value) will pay twice as much property tax as the person who owns a $250,000 home.

So, the government has a budget, and it's going to pay off that budget with property taxes, divided evenly based on property owners' assessed values, no matter the market conditions.  That causes some to believe that their tax assessment doesn't matter, because "the taxes won't change".  This is an overstatement, though.

Reducing Your Property Taxes, and Appealing Your Property Tax Assessment

The way property taxes are calculated and collected actually pits property owners against each other.  The $1 million tax pie is going to be paid, but someone's going to pay a bigger slice.  If one property owner's assessed value is reduced while another's is increased, the former's share of the tax bill will go down and vice-versa.

This creates the incentive for property owners to appeal their tax assessment when they feel it is too high.  By reducing the property tax assessor's assessed value, that homeowner could, in effect, reduce their property tax bill (in relation to what it would have been without the appeal).

The process to appeal your property tax assessment varies by region.  In general, though, a property owner must prove to the municipality or tax assessor that there are more accurate recent sales comparables that show a lower value for the real estate.  The owner needs to take the most recent sales that accurately represent their property in style, condition, location, etc., and show that the property's value is demonstrably less than the assessor's given value.

In the event that the property owner can prove this, the assessor will reduce the assessed value of the property.  This will, in effect, reduce that property owner's share of the property tax bill to be paid (and increase everyone else's slightly).

How Assessed Value could affect your real estate transaction:

Assessed value is a red herring in most of the real estate transaction process.  Buyers will attempt to use it as leverage against sellers to bring prices down, but savvy sellers will know that this argument doesn't have a strong foundation.  CMAs and appraisals are far better measures of value.

While the property's assessed value doesn't do much to ascertain the exact market value of a home, it can give a buyer insight into whether or not they'll be paying higher taxes upon purchasing the home.  After researching a number of similar properties and finding one that has a significantly higher assessed value than the others which are priced the same, home buyers might consider that they'd need a reassessment or an appeal to the tax assessor.  To bring their property taxes in line with other comparable sales, it might just take the assessor reviewing the new comparable sales at the next assessment period, or it could require the property owners taking matters into their own hands.

Want to know more about assessed value?

This post is for informational purposes only, home buyers and sellers should not rely upon it to make decisions.  Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your assessed value questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post
March 10, 2015

Real Estate: What is an Adjustable Rate Mortgage? ARM

adjustable rate mortgage

What is an Adjustable Rate Mortgage (ARM)?

Real Estate Terms and Definitions:
Adjustable Rate Mortgage

Quick Definition: Interest rates are periodically adjusted up or down over the life of the loan based on a specified financial index. The plan may have rate or interest "caps" that limit the amount your interest rate may change. An ARM generally carries a lower initial rate than fixed-rate loans because it moves with the market.

In-Depth Explanation of Adjustable Rate Mortgage

Adjustable rate mortgages have interest rates that change over time.  There are a wide range of ARM products, and they can be financially beneficial in certain situations.  The most common types of adjustable rate mortgages are 3 year, 5 year, 7 year, and 10 year ARMs.

These multi-year ARMS will have a set interest rate for the length of the initial fixed rate period.  For example, a 5 year ARM might be fixed at 3.0 percent for 5 years.  While the market rate for a 30 year fixed rate mortgage might be a higher rate like 4.5 percent, the lender offers an ARM at a lower initial rate because there is the opportunity to make more money at the end of the loan when the interest rate adjusts.

In this scenario, after 5 years of paying on the mortgage at 3.0 percent, the borrower's rate might rise to 4.0 percent in the first year.  The rate could rise again the next year to 4.5 percent.  Adjustable rate mortgages are tied to an index, which is a financial instrument that rises and falls based on the markets.  One example is the London InterBank Offer Rate (LIBOR).  This benchmark rate is what banks offer one another when lending money.  If the rate banks charge one another goes up, the LIBOR goes up, and your adjustable rate mortgage rate goes up.

To put it simply, if it gets more expensive for banks to borrow money, it's going to get more expensive for you to borrow money.  When you get past the fixed rate period of your ARM, your interest rate will be affected by how much it costs banks to lend in that current market.  Your rates, and payments, will go up when banks' costs do.

There are usually caps on ARMs.  They may specify that your rate can't go up more than 1 percent at a time, can only be adjusted once every 6 months, and can't go up more than 5 percent total during the life of the loan.  Every adjustable rate mortgage can have its own terms, so pay specific attention to the details.

Are ARMs Dangerous or Bad for Real Estate Consumers?

Adjustable rate mortgages got a bad rap during the last housing downturn.  Lots of home buyers were qualifying for 2 year ARMS in which they could only afford the first two years' payments.  When the rates adjusted upward, the payments became too high, and many of them went into default and had their homes foreclosed upon.

Like any tool, ARMs can be used wisely or foolishly.  Lax underwriting during the boom (not qualifying buyers on the future payments), lack of credit oversight (loosening of standards that had required good past payment history), and ignorance of future income prospects (no verification of employment and income) led to many ARMs turning into foreclosures.  

At the same time, many borrowers who had good credit, verifiable income, and strong employment used ARMs to finance homes and had no trouble.  All kinds of scenarios make sense for the use of an ARM.  Someone who's only going to live in a home for a few years has no need to pay a higher interest rate on a 30 year mortgage.  A known change upcoming in the borrower's income situation could require a short-term financial savings.  That could include someone going back to school for a few years, one spouse taking off work for a short time, etc.  The ARM is not the problem when discussing foreclosures, it's the use of the ARM in questionable situations.

How Adjustable Rate Mortgage could affect your real estate transaction:

An ARM can allow you to qualify for a larger home purchase, or minimize your monthly expenses and qualify for a better interest rate.  As long as you are confident that your situation will be viable when the fixed rate period of the ARM ends, the adjustable rate may be a financial benefit.

Sellers won't necessarily know what kind of loan a buyer is getting from their lender, so whether or not it's an adjustable rate probably wouldn't affect the offer being made on a home.  The adjustable rate might put the borrower's debt-to-income ratio in a position that allows them to buy in a nicer location, or a more attractive home.  This shouldn't be the sole reason to use an adjustable rate mortgage, though.  The ARM should only be used by a home buyer who is prepared to refinance, or stick with the new payments, when the fixed rate period of the ARM ends.  Situations change, but borrowers who know they'll be able to afford the adjustable payments at the time the ARM begins to adjust, are good candidates to look at the ARM as an option.

Want to know more about adjustable rate mortgages?

This post is for informational purposes only, home buyers and sellers should not rely upon it to make decisions.  Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your adjustable rate mortgage questions or any other questions about home buying, selling, and the real estate world.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

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March 10, 2015

Real Estate: What is an Appraisal?

appraisal

What is an Appraisal?

Real Estate Terms and Definitions:
Appraisal

Quick Definition: A professional opinion as to the value of a home and property.

In-Depth Explanation of Appraisal

There are many ways to evaluate a property's value.  Appraisals are just one of those ways, but are often the most effective method of finding the value of a home or piece of property.

Appraisers are licensed professionals who write appraisal reports.  The appraisal report is a necessity for nearly any home loan.  Whether you're getting a 30 year purchase mortgage or a home equity line of credit, it's likely that your lender will want an appraiser to do an appraisal for them to verify your home is worth the risk.

Appraisals look at the highest-and-best use of the property.  For most homes, the best use is just as it is--a residential home.  There are situations where a piece of property might be zoned for residential and commercial buildings, or for a single family home and a condominium building.  In these cases, it will be up to the appraiser to say if the real estate has more value as a house or as one of the other potential property types, and to evaluate the property's value at that highest-and-best use scenario.

For most home appraisals, your appraiser will look at the age, condition, size, features, and location of the home.  Comparable sales in your neighborhood will be used to get a framework for your home's potential value, and then adjustments will be made.  If your home has fewer bedrooms, more square footage, a better view, newer roofing materials, etc., the appraiser will add or subtract value from the comparable sales to make a relative valuation.

Appraisers must be licensed because there are so many people dependent upon them in the real estate process.  Buyers want to know they're paying a fair amount for a home.  Sellers need to show they're selling a property at "market value".  Lenders need to know that they're not making a large loan on a home that's worth less than the risk they're taking.

Other Kinds of Home Valuations That Are Not Appraisals

Many home valuations are mistaken for appraisals.  The first is a tax assessment value, or the assessed value.  A municipality (usually the county) will have a tax assessor who regularly attaches a value to every piece of real estate to establish how much property tax the owner should pay.  Tax assessments are adjusted regularly, and while they're often in the ballpark of the property's real value, they're also usually less accurate than a true appraisal.

There are also Automated Valuation Models (AVMs) that create value estimates for homes using only data.  They compare comparable sales and home features and use an algorithm to derive a potential value or value range for a home.  These valuations are only good for an initial look at a home's price range, and are nowhere near as accurate as an appraisal.  AVMs are popular with consumers, though, because they're quick and easy.

Try our instant online home valuation AVM here.  Just remember that AVMs need human interpretation.  If you're really looking for your home's value, let us know and we'll get you a Comparative Market Analysis (CMA).  That's a full market comparison of your home to other sales with professional real estate eyeballs making the detailed inferences needed to get you a true value for your home.  CMAs are often as accurate as appraisals, but they're not officially used as appraisal reports.

How an Appraisal could affect your real estate transaction:

The appraisal of a home is critical to the process for any home that is being financed.  If the buyer is getting a mortgage to buy a home, the seller, buyer, and lender are dependent upon an appraiser to get the transaction closed.

Appraisals should be ordered as soon as possible after a buyer and seller agree to a purchase contract.  Most buyers will want to wait until after they've inspected the property and signed off an inspection repairs agreement with the seller.  The appraisal usually costs the buyer a few hundred dollars, so they don't want to order it unless they know the sale will go forward after the inspection.

When the appraisal is ordered, the lender will be waiting on it before doing its final underwriting of the buyer's loan, and then creating the buyer's closing documents.  This is why it's critical to have the appraisal ordered as soon as possible to keep the financing moving forward and not delay closing.  

The appraiser will do research, come to the property, and "inspect" its features.  This is not an inspection like you'd expect the buyer to conduct with a general home inspector.  The appraiser is merely verifying that all of the home's parts are in their correct places and visually seem in the condition/order necessary to support the value of the purchase mortgage.  The appraiser then delivers the appraisal report to the lender and, if necessary, follows up with any questions the lender's underwriters have.

If the appraisal value comes in below the purchase price, it may affect how much the buyer is able to borrow.  That could lead to the buyer borrowing less and putting more money down, or negotiating with the seller for a lower purchase price.  Those details will depend on the contract, the lender, and the buyer and seller's negotiations.  This is a tricky situation which you'll want to discuss with your Realtor directly.

Want to know more about appraisals?

This post is for informational purposes only, home buyers and sellers should not rely upon it to make decisions.  Consult with a licensed real estate broker and/or real estate attorney before making real estate related decisions.

We have real estate brokers, mortgage lenders, inspectors, title officers, and others who can answer your real estate-related questions.  Give us a call or send us an email and we can put you in touch with someone who can answer your appraisal questions or any other questions about home buying, selling, and the real estate world.

Appraisals can be a confusing portion of the real estate purchase transaction, so let us help you navigate the appraisal process with less stress.

Looking for more real estate terms and definitions?

Try the Real Estate Terms and Definitions Guide

Sam DeBord is Managing Broker with Seattle Homes Group and Coldwell Banker Danforth. Our team serves home buyers and sellers in Seattle, on the Eastside, and across the Puget Sound Region.

Explore Seattle Homes, and Search today's newest listings from every company in Greater Seattle.

Share This Post