Essential information for buyers, sellers and refinancers.

Whether you are buying a house with a mortgage, refinancing your existing mortgage or selling your house to anyone other than a cash buyer, a valuation of the house is a main component of the operation. If you are a buyer, owner or seller, you will want to understand how the valuation process works and how an expert determines the value of a home.

IMPORTANT ADVISES
• An appraisal is an impartial professional opinion of the value of a home and is used whenever a mortgage is involved in the purchase, refinancing or sale of that property. • A qualified valued expert creates a report based on a visual inspection, using recent sales of similar properties, current market trends and aspects of the house (for example, amenities, floor plan, square feet) to determine the value of the property. • The applicant usually pays the cost of the appraisal, which can be several thousand pesos. • When the value obtained in the valuation is lower than expected, the operation can be delayed or even canceled.

What is a valuation of a home?
A valuation is an impartial professional opinion about the value of a home. Valuations are almost always used in buying and selling transactions and are commonly used in refinancing transactions. In a purchase and sale operation, an appraisal is used to determine if the price of the housing contract is appropriate given the conditions, location and characteristics of the house. In a refinancing operation, an appraisal assures the lender that he is not giving the borrower more money than the house is worth.

Lenders want to make sure that the owners are not borrowing too much for a property because the house serves as collateral for the mortgage. If the borrower does not pay the mortgage and goes into foreclosure, the lender will sell the house to recover the borrowed money. He assessed help the bank protect itself against lending more than it could recover in the worst case scenario.

The evaluation process and how values are determined
Because the valuation mainly protects the interests of the lender, the lender will usually order the valuation. A valuation costs several thousand pesos and, generally, the borrower pays this fee.

According to the college of valuers, an association of professional real estate valuation agents, a qualified grader must have a license or certification, and be familiar with the local area. According to federal regulations, the scorer must be impartial and have no direct or indirect interest in the operation.

The value obtained from the valuation of a property is influenced by recent sales of similar properties and current market trends. The comforts of the house, the number of bedrooms and bathrooms, the functionality of the floor plan and the square feet are also main factors in evaluating the value of the house. The appraiser must perform a complete visual inspection of the interior and exterior and record any condition that negatively affects the value of the property, such as the necessary repairs.

Normally, valuers use the Uniform Residential Valuation Report for single-family homes. The report asks the valuer to describe the interior and exterior of the property, the neighborhood and the nearby comparable sales. The appraiser then provides an analysis and conclusions about the value of the property based on his observations.

The report must include:
• A street map showing the valued property and the comparable sales used • A sketch of an exterior building. • An explanation of how the square surface was calculated • Photographs of the front, back and street scene • Photographs of the exterior front of each comparable property used • Other relevant information, such as market sales data, public land records and public tax records, that the valuer requires to determine the property.

Important:
When refinancing a mortgage, if the value of the valuation puts the accumulated value of your home at less than 20%, you will get stuck paying for private mortgage insurance (PMI).3

What home buyers need to know
When you are buying a house and you are under contract, valuation will be one of the first steps in the closing process. If the valuation is equal to or greater than the contract price, the transaction proceeds as planned. However, if the valuation is lower than the contract price, you can delay or derail the transaction.

Chances are that neither you nor the seller want the transaction not to materialize. As a buyer, you have the advantage that a low valuation can serve as a negotiation tool to convince the seller to lower the price. The bank will not lend you or any other potential buyer more than the house is worth.

While valuations help buyers avoid overpaying for homes, a seller may feel that a low valuation is inaccurate and be reluctant to lower the price. If a bad valuation stands between you and the purchase or sale of your house, look for a second opinion through another valuation made by another person. The valued ones can make mistakes or have imperfect information. Better yet, present a factual case for a higher value for the original valuation. They can agree with you and review the valuation.

What home sellers should know
As a seller, a low valuation, if necessary, means that you may have to lower the price of your house to sell it. It is unlikely that waiting for a cash buyer who does not require a valuation as a condition for completing the transaction will generate a higher selling price. No one wants to overpay for a house.

Unfortunately, if your surrounding area has experienced recent sales in difficulty, that can reduce the valuation value of your house. If you believe that the value of your house has been reduced by the sale price of nearby foreclosures and short sales, you may be able to convince the valuer that your house is worth more if it is in better condition than those properties.

Obtaining a valuation is also a mandatory step when giving away a house to a family member as a gift of equity.

What refinancing homeowners need to know If you are refinancing a conventional mortgage, a low valuation can prevent you from doing so. The house must be valued at or above the amount you want to refinance in order for your loan to be approved. However, if your current mortgage is an SHCP mortgage.

In short
When everything goes well, the valuation of the house is just another box to check on a closing checklist. When the value of the valuation is lower than expected, the operation can be delayed or even canceled. Regardless of the situation you are in in your experience of buying, selling or refinancing a house, a basic understanding of how the appraisal process works can only work in your favor, especially if you are buying your first home.