Appraisals & Market Value

Understanding How Home Value Is Determined Before You Buy

Are there standard ways to determine how much a home is worth?

Yes. The two most common and reliable methods are a comparative market analysis (CMA) and a professional appraisal.

A CMA is an informal estimate provided by a real estate agent based on the recent sale prices of similar homes in the neighborhood. Reviewing comparable homes sold within the past year—as well as current asking prices—helps you avoid overpaying.

An appraisal is done by a certified appraiser who visits the property to inspect features such as size, number of rooms, upgrades, construction quality, and neighborhood condition. The appraiser then compares recent sales of similar properties to estimate the home’s value.

Appraisals typically cost between $200 and $300 and are required by most lenders before approving a mortgage to ensure the property is worth the loan amount. You can also do your own research through public sales records, online databases, and real estate websites.

How do you determine how much a home is worth?

At the end of the day, a home is worth what a buyer is willing to pay for it. This becomes especially important in hot markets where buyer competition can drive prices above asking. That final agreed-upon price between buyer and seller is what defines the home’s fair market value.

What about appraised value and market value?

• Appraised value is an expert estimate provided by a licensed appraiser, based on objective criteria like the home’s condition and comparable recent sales.
• Market value is what the home actually sells for once the buyer and seller agree.

What is the difference between list price and sale price?

• List price is the seller’s advertised asking price. It’s often a target or starting point.
• Sale price is the actual price the home sells for at closing.
  If you’re unsure whether a list price is fair, look at the sales prices of similar homes in the same area.

Closing Costs

What They Are, How Much to Expect, and Ways to Save

Is it possible to save on closing costs?

Yes—although they can be significant, averaging 5% to 6% of the home’s purchase price. Here are a few ways to cut them down:

• Negotiate with the seller to cover some or all closing costs as part of your offer.
• Look for no-point loans to lower upfront expenses, though it may mean a higher interest rate.
• Consider no-fee loans where fees are rolled into the interest rate, reducing cash needed at closing.
• Explore seller financing to avoid some lender-imposed fees altogether.
• Compare multiple lenders. Each one has different fee structures—shopping around can make a big difference.

Is there anything I should know about closing day?

Yes. Here’s a quick checklist to help you prepare:

• Keep extra money in your account. Unexpected costs can pop up.
• Bring a certified check or cashier’s check for the total due—ask ahead of time how much.
• Bring your loan commitment letter in case you need to verify loan approval.
• Bring your purchase contract to clarify any issues during closing.
• Bring your photo ID—a driver’s license usually works.
• Do a final walk-through to confirm the condition of the home before closing.
• Arrange utilities to be switched into your name effective the day of closing.

What are closing costs?

Closing costs are fees paid at settlement in addition to the home’s purchase price. Both buyer and seller may cover certain costs depending on local customs and negotiations.

Typical buyer closing costs include:

• Title insurance
• Lender fees and loan origination points
• Escrow or attorney fees
• Property taxes (prorated)
• Prepaid insurance
• Government recording and document fees

Your lender is required to provide a Loan Estimate outlining expected costs soon after you apply for a mortgage.

Getting Started

Smart First Steps Before You Buy a Home

How do you decide whether to add on to an existing home or purchase a new one?

If you already own a home and are deciding between expanding or buying something new, weigh the costs, available financing, and zoning laws. Also consider whether you’re emotionally attached to your current home.

Some questions to ask yourself:

• Can I afford improvements with cash, or do I need financing?
• Do I have enough equity to fund a remodel?
• Does local zoning allow the type of addition I want?
• Are there homes available in my price range that better fit my needs?

Sometimes, adding on is cheaper and less stressful than moving. But in other cases, buying a new home better suits long-term goals.

How much can I afford?

A general rule of thumb is you can afford a home worth 2.5 times your annual income, though this varies.

Your lender or real estate agent can help you calculate your ideal price range by factoring in:

• Income
• Monthly debts
• Property taxes
• Homeowners insurance
• Mortgage terms

A good agent can also provide a settlement estimate sheet based on homes you’re considering.

Is it best to save for the ultimate dream home or begin with a starter home?

Waiting for the perfect home could take years. With mortgage rates historically low and home values on the rise, many buyers choose to start small, build equity, and trade up later.

Buying a starter home now may give you a financial edge in the long run as appreciation and equity build over time.

What are the advantages of owning a home?

There are several benefits, including:

• Control over your space—no landlord means more freedom.
• Building equity as the home appreciates in value.
• Tax savings, such as deducting mortgage interest and local property taxes.
• Predictable monthly payments with a fixed-rate mortgage.
• Long-term investment potential for your family’s future.

Home equity can later help you pay for college, home improvements, or even a second home.

What is the first step to buying a home?

Make sure you’re ready—both financially and emotionally. Ask yourself:

• Do I have steady income and a manageable debt load?
• Do I have enough saved for the down payment and closing costs?
• Am I working to improve or maintain good credit?
• Can I budget for maintenance and unexpected repairs?

If you can answer “yes” to these, you’re well on your way to becoming a homeowner.

Home Inspections

What to Know Before You Commit to Buying a Home

Do I need to be at the inspection?

No, but it’s highly recommended. Being present allows you to ask the inspector questions, get clarification on issues, and gain an objective opinion about the home—especially valuable since the inspector has no financial or emotional stake in the purchase.

How do I select a home inspector?

Choose a qualified and experienced professional, ideally someone who belongs to a respected trade group like the American Society of Home Inspectors (ASHI). ASHI members must meet strict experience and knowledge requirements and follow a formal code of ethics and inspection guidelines.

Should I hire a home inspector?

Absolutely. Skipping an inspection is risky and can cost you thousands later. An inspector may uncover major issues—such as plumbing, roofing, or electrical problems—that could change your mind or give you leverage to renegotiate.

Always include a home inspection clause in your purchase offer. This gives you the right to cancel the contract or renegotiate if major problems are found. The clause can also require the seller to fix issues before closing.

You might also want to hire additional specialists to inspect for radon, asbestos, mold, or water system concerns, depending on the home’s age and location.

What does a home inspector do?

A home inspector is a trained professional—often a contractor or engineer—who examines the safety, structure, and systems of the home. They assess the condition of:

• Roof
• Foundation
• Plumbing
• Electrical systems
• HVAC
• Windows and insulation

Their job is to identify problems, not to estimate the home’s value or tell you whether it’s a good deal. Inspections typically happen after your offer is accepted but before closing.

Insurance

What Coverage You Need and Why It Matters

Is private mortgage insurance necessary?

If you’re putting down less than 20% on a conventional loan, yes—private mortgage insurance (PMI) is usually required. PMI protects the lender if you default on the loan.

You’ll pay a small upfront fee and a monthly premium added to your mortgage. Once you’ve built enough equity (usually 20–22%), you can request to cancel PMI.

Note: PMI is different from mortgage life insurance, which pays your mortgage if you pass away.

What about title insurance?

Title insurance protects the lender (and optionally, you) if ownership of the home is challenged due to errors in public records or undiscovered legal claims.

• Lender’s policy: required in most transactions
• Owner’s policy: optional but highly recommended

The cost is typically a one-time fee based on the purchase price or loan amount, and it covers you as long as you own the property.

What does homeowners insurance cover?

A standard homeowners insurance policy typically includes:

• Protection against damage from fire, theft, storms, and other disasters
• Personal property coverage for belongings inside the home
• Liability coverage in case someone is injured on your property
• Additional living expenses if you’re displaced due to damage

Lenders require you to have a policy in place before closing. Even if you’re buying without a mortgage, insurance is essential to protect your investment.

What is condo and co-op insurance?

You’ll need two policies:

1. A master policy provided by the condo or co-op board, covering shared areas like hallways and lobbies (paid through your monthly fees).
2. Your own personal policy covering your belongings, improvements, and personal liability.

Always confirm what the master policy includes so you don’t over- or under-insure your unit.

What kind of home insurance should I get?

A standard policy works for most buyers, but you can add optional coverage depending on your needs:

• Flood or earthquake insurance (required in some areas)
• Replacement-cost coverage for full value of personal items
• Home business riders for office equipment and liability
• Inflation rider to adjust coverage as your home’s value increases

Make sure your coverage equals at least 80% of the full replacement value, or your insurance company may not cover the full loss in a claim.

Lease Options

An Alternative Path to Homeownership

How does a lease option work?

A lease option lets you rent a home with the exclusive right to purchase it later—usually in 6 months to 2 years. The purchase price is often agreed upon upfront. A portion of your rent may go toward your future down payment.

Lenders will typically honor this if:

• The rent exceeds typical market value
• A valid, written lease-purchase agreement is in place

Before signing anything, talk with a real estate agent and have a real estate attorney review the contract to make sure your rights are protected.

What is a lease option?

It’s a contract that gives you the option—but not the obligation—to buy the home you’re renting. The seller is legally bound to sell if you choose to buy, but you can walk away if it’s no longer right for you.

Lease options are ideal for:

• Buyers who don’t yet have enough saved for a down payment
• Those working to improve credit before qualifying for a loan
• Anyone who wants to lock in a purchase price while preparing to buy later

Negotiating & Closing the Best Deal

How to Protect Your Interests and Get the Best Value for Your Home Purchase

Are low-ball offers a good idea?

They can backfire. If your offer is substantially below the asking price, it may offend the seller and end negotiations entirely—especially if the home is priced fairly.

Do your research first. Look at recent sales and listings in the neighborhood and try to understand the seller’s situation. A seller who needs to move quickly may consider a lower offer with fast closing. In a buyer’s market, even low offers may lead to productive counteroffers. In a seller’s market, expect little flexibility.

Can you negotiate interest rates?

Occasionally. Some lenders may negotiate your rate or the number of points (fees) charged on a mortgage—but it’s not the norm. Shop around and compare offers. Rates are often listed online or in local publications.

If the seller is financing your loan, you may have more room to negotiate favorable terms, especially if they’re motivated to sell.

Do I need an attorney to buy a home?

It depends on your state. Some states require an attorney to be involved in real estate transactions; others do not.

For standard purchases, most buyers manage with the help of their real estate agent. However, it’s smart to consult a real estate attorney if the contract contains unusual terms, contingencies, or legal complexities. Ask for referrals and confirm experience and rates before hiring.

Does the seller take the furnishings once the home is sold?

Typically, yes. Fixtures (items permanently attached to the home like built-in shelves or lighting) stay with the property unless stated otherwise in the contract. Personal property, like furniture or washers and dryers, is negotiable—just be sure it’s written into the agreement.

Is it possible to buy a home below market price?

Yes, but it takes persistence and strategy. Some potential bargain opportunities include:

• Foreclosures
• Fixer-uppers
• Slow-selling new developments
• Tenant-in-common partnerships, where a partial interest in a shared property might be sold at a discount

You’re more likely to find deals in a buyer’s market or during economic downturns, when sellers are more motivated.

What are some negotiating tips?

• Understand the seller’s motivation. Urgency can work in your favor.
• Know the market value. Compare recent sales of similar homes.
• Stay flexible. Avoid ultimatums like “take it or leave it.”
• Don’t reveal your hand. Keep emotions and next moves private.
• Ask for something in return if you raise your offer—such as appliances or repairs.
• Use your strengths. If you’re paying cash or pre-approved, let the seller know.

Above all, leave emotions at the door. Overconfidence, fear, or excitement can hurt your decision-making.

What contingencies should appear in the offer?

Contingencies protect your interests. Common ones include:

• Financing contingency: If you can’t secure a mortgage, the deal is off.
• Inspection contingency: Lets you back out or renegotiate if the home has significant issues.

You can also include:

• Requirement for seller to pass clear title
• Agreement to complete repairs before closing
• Seller must maintain property condition until settlement

Contingencies prevent you from losing your earnest money deposit if a problem arises.

Property Taxes

What You Need to Know About Assessments, Deductions, and Escrow Accounts

Are impound accounts required for all mortgage loans?

Not always. With conventional loans and down payments of 20% or more, you may be able to waive the escrow (impound) account—though the lender might charge an extra fee (typically ¼ point).

Some lenders also allow pledge accounts, where you hold funds in your own account and pay taxes and insurance yourself. This must usually be arranged before closing.

Even if required initially, many lenders allow escrow accounts to be dropped once your loan-to-value ratio hits 80%, as long as you have a strong payment history.

Are property taxes deductible?

Partially. You can deduct property taxes, but there’s a cap:

• The total deduction for state and local taxes (SALT) is limited to $10,000
• Mortgage interest is deductible up to $750,000 of debt for most homeowners

Keep in mind: Escrowed tax funds can’t be deducted until actually used to pay the taxes.

Can I contest my property taxes?

Yes. Many homeowners successfully contest assessments—especially when values rise quickly or seem inaccurately high.

To dispute your property tax:

1. Contact your local assessor’s office for procedures and deadlines
2. Gather evidence like a recent appraisal or comparative market analysis (CMA)
3. Show that your home’s assessed value is higher than similar properties nearby

Most real estate agents offer CMAs for free, and appraisers can be hired for more formal appeals.

How are individual tax bills figured?

Property tax is an ad valorem tax, meaning it’s based on your home’s value—not income or spending.

Each tax bill is calculated using:

• Your home’s assessed value
• The local tax rate
• Adjustments for exemptions (e.g., veterans, seniors, etc.)

Taxes are reassessed on a regular schedule, which varies by state—some annually, others every few years.

What is an impound account?

Also known as an escrow account, this is a special account your lender sets up to collect and pay your property taxes, homeowner’s insurance, and mortgage insurance.

Lenders often require borrowers to fund this account monthly and may collect a two-month cushion at closing. Some states even require lenders to pay interest on funds held in escrow.

Why do homeowners have to pay property taxes?

Property taxes fund local public services, including:

• Schools
• Roads
• Police and fire departments
• Libraries and parks

Because these services are tied to real estate and location, property taxes are typically assessed at the city or county level, and adjusted based on your home’s assessed value.

Condominiums & Townhomes

Are condos good investments?

Condos can be a solid entry point into homeownership. Due to the rising cost of single-family homes and strong demand, condos have remained valuable even through economic downturns. Many condominium associations have improved their management practices, reducing legal disputes and enhancing property maintenance.

How do townhouses differ from condominiums?

• Townhouses are attached single-family homes where owners own both the structure and the land beneath it. They range from duplexes to large communities.
• Condos typically involve ownership of the interior space only, with shared ownership of common areas like land, lobbies, and pools.
• Townhouses may also have shared amenities and homeowners’ associations similar to condos.

How do you choose a good condo?

Look for a well-maintained building with a financially sound association. Key steps include:

• Review the latest financial statements of the condo association.
• Ask the board about any upcoming major repairs and whether reserves are sufficient.
• Check association bylaws, rules, and CC&Rs for restrictions (pets, rentals, sales rights).
• Review meeting minutes to identify any ongoing disputes or issues.
• Find out the owner-to-tenant ratio, as high tenant presence can affect community stability.

What are the pros and cons of owning a townhouse?

Pros:

• Minimal exterior maintenance and repairs
• No neighbors above or below, unlike apartments
• Greater sense of security due to attached homes

Cons:

• Homeowners association fees may apply
• Less privacy compared to detached homes
• Restrictions on exterior modifications

What is a condominium?

A condominium is a property where you own your unit’s interior space but share ownership of common areas with other residents. Owners pay monthly fees for maintenance, repairs, and insurance managed by the condo association.

Why buy a condo?

Condos offer an affordable way to enter the housing market, especially in expensive areas. They appeal to single buyers, empty nesters, and first-time owners who want to avoid yard work and exterior maintenance. Many condo communities also provide amenities like gyms, pools, and tennis courts.

Co-ops (Cooperatives)

What are co-ops?

Co-ops are different from condos in that you don’t own your unit outright. Instead, you own shares in a corporation that owns the entire building. Shareholders have the right to live in a specific unit and use common areas but must pay monthly fees for operating expenses. Co-ops are governed by a resident-elected board, which can enforce rules and even evict residents for non-payment.

What are the benefits of having a co-op?

• Potential tax deductions similar to real property owners
• Typically lower real estate taxes and maintenance costs
• Greater resident control and participation
• Ability to limit absentee and investor ownership, promoting community stability
• Available in various property types, from apartments to townhouses and senior housing

For more details, contact the National Association of Housing Cooperatives (NAHC) at (202) 737-0797 or visit www.coophousing.org.

Fixer-Uppers

Are special tax breaks available for historic rehabilitation?

Yes. Certified historic structures used for income production qualify for a 20% investment tax credit on rehabilitation expenses. Historic status is determined by listings on the National Register of Historic Places or certified local/state districts.
For more information, contact the National Trust for Historic Preservation at (202) 588-6000 or visit www.nationaltrust.org.

Does the federal government offer home improvement programs?

Popular programs include:

• Title 1 Home Improvement Loan: HUD-insured loans up to $25,000 for basic home repairs.
• Section 203(k) Program: Financing for major rehab on 1-4 family homes (excluding condos).
• VA Loans: Low-interest loans for veterans to buy, build, or improve homes.
• Rural Housing Repair Loans: Low-rate loans for low-income rural homeowners for repairs or hazard removal.

How can I finance work needed on a fixer-upper?

Many lenders prefer home equity loans or unsecured loans over specialized home improvement loans due to complexity. First-time buyers may find it harder to qualify due to lower equity and savings. Options include:

• Borrowing from relatives
• Using whole life insurance policy loans
• Refinancing your mortgage or getting a second mortgage
• Utilizing government home improvement programs
• Finance agencies (last resort due to high rates)

How do I determine the value of a distressed property?

• Obtain a comparable market analysis to see recent prices for similar homes.
• Carefully assess repair costs, consulting neighbors or public property records if you cannot inspect inside.
• For foreclosures, gather info from the lender.

Is buying a fixer-upper a good idea in “bad” areas?

It depends on your risk tolerance. Many affordable homes in economically challenged neighborhoods provide ownership opportunities, and some areas are undergoing revitalization. Research local market trends before deciding.

What about state and local government assistance?

Most states offer below-market loans for renovation via housing finance agencies. Many cities run improvement programs targeting specific neighborhoods. Contact your state housing agency or local city hall for details.

What guidelines should I use to find a contractor?

• Get referrals from trusted sources—not just the Yellow Pages.
• Hire licensed contractors only; check with state boards and Better Business Bureau.
• Interview and request estimates and references.
• Verify worker’s compensation and liability insurance.
• Never pay a large deposit upfront.

What kind of return can I expect from home improvements?

Returns vary, but high paybacks come from siding and window replacements, kitchen remodels, bathroom additions, and mid-range master suites. Improvements also boost curb appeal and livability.

Where can you find fixer-uppers?

They are everywhere, often priced below nearby homes due to deferred maintenance or abandonment. Start with properties needing minor cosmetic work before tackling major repairs. Follow the strategy of choosing the least desirable home in a desirable neighborhood, ensuring repair costs fit your budget.

Foreclosures

How do I find government-repossessed properties?

• HUD homes: Acquired by the Department of Housing and Urban Development after mortgage foreclosures it insures. Sold through licensed real estate brokers who receive up to 6% commission.
• VA homes: Foreclosed properties from VA-guaranteed loans are marketed via a federal bank that lists them with local agents.

What are VA foreclosure guidelines?

Anyone can buy a VA foreclosure. Qualified buyers may get VA loans with no down payment, even if not veterans. More info at www.va.gov.

What about purchasing HUD foreclosures?

• Can be bought with cash or mortgage.
• Down payments depend on FHA eligibility and may be as low as under 5%.
• Offers require earnest money deposits (5% of bid, $500–$2,000).
• Sold “as is”—limited repairs, no warranties. Prices reflect needed improvements.
• HUD may offer incentives for upgrades, early closing, or help with closing costs.
• Contact your real estate agent or visit www.hud.gov.

Disadvantages of buying foreclosures:

• Usually all-cash required, no financing.
• Title risks if not properly checked.
• Often no interior inspections possible before purchase.
• Sold “as is,” no repair negotiations.
• Foreclosure and estate sales are often exempt from seller disclosure laws.

What causes foreclosure?

Failure to pay mortgage, property taxes, home insurance, or local utility bills due to job loss, divorce, credit problems, or economic issues.

What happens at a trustee sale?

• After missing 3 payments, a notice of default is recorded.
• The property is sold at auction to the highest bidder (often starting at loan balance).
• Bidders must pay cash or cashier’s checks.
• Sales conducted by a trustee such as a sheriff or lawyer.

Where to find foreclosure properties?

• Legal notices in local newspapers and postings on the property.
• Real estate agents often know about pending foreclosures.
• Banks may provide contact info to owners facing foreclosure.
• Foreclosure properties attract savvy investors; inexperienced buyers should be prepared with inspections and appraisals.

New Homes & Vacation Homes

Can you negotiate the price of a new home?

• Yes, almost everything is negotiable, especially early or late in a project.
• Builders may offer upgrades (better lot, carpets, fixtures) if price isn’t flexible.

Do builders provide financing?

• Many have financing subsidiaries or refer buyers to preferred lenders.
• Incentives like low down payments or interest rate subsidies may be offered.

Should I buy a vacation home?

• Market can be volatile, but growing as investment, enjoyment, or retirement.
• Tax benefits include deducting mortgage interest and property taxes; rental use allows depreciation but limits personal use.
• Consider costs of carrying two mortgages, maintenance, utilities, and financing differences.

Should I hire a home inspector for a new home?

• Absolutely—always hire an inspector regardless of the home’s age.
• Ask builders for construction documents and prior inspections.
• Choose inspectors certified by groups like the American Society of Home Inspectors (ASHI).

What about vacation homes as investments?

• Risks include affordability of repairs, maintenance, insurance, and rental management.
• Distance from property complicates oversight.
• Rental income may be unreliable; ensure finances can cover mortgage without rent.

What else should I consider when buying a new home?

• Research neighborhood development plans, access to transit, schools, shopping, and zoning.
• Talk to existing homeowners about builder reputation.
• Check for builder-imposed restrictions on appearance and renovations.
• Don’t rely solely on marketing—trust your own comfort and judgment.

Where to Buy

Why is location so important?

Location profoundly affects home value and livability. Your lifestyle preferences dictate the ideal location: suburbs, downtown, quiet, or lively areas.
Consider:

• Neighborhood character and safety
• Traffic, noise, and ambiance
• Quality of schools and local services
• Property taxes
• Accessibility to work, recreation, and community resources