Property appraisals, replacement value and home equity financing

It is difficult to gauge the mood of the moment. Some agents have mentioned that they are experiencing a brief hiatus, possibly due to the election and increased fees, while others say they have not stopped. Who knows, but I guess some people are waiting for the new year to make important decisions.

property appraisals

In the last email I said I was going to talk about property valuations. When property values ​​start to rise, a buyer needs to know that he is paying fair value for a purchase and not be fooled by what agents exaggerate or what is known as “improper seller’s expectations.” As you know, an agent is expected to get his client (the seller) the best possible price and will never tell a potential buyer that he is paying well above market value. That is the job of the buyers agent who works solely for the buyer.

So how is a property valued?

Mostly, it’s just an agreement between the listing agent and the seller about what they both think the property is worth. It’s easier to value a typical suburban home in a busy neighborhood, since you can look at previous sales of a similar nature. But when a property is unique or different, renovated or highly sought after, different rules may apply. An agent will be happy to come to your home and appraise it for free. However, (Shock! Horror!) some agents have been known to inflate their market valuations to win business.

The Internet has changed the real estate business in many ways. It is now possible to obtain your own approximate market valuations online. Three sites offer this service and have managed to collect information on past sales and activity in the market you are in. They point out that computer modeling cannot take into account all factors, such as the condition of a building or recent renovations. Is it so:

Australian Property Monitors $69.95

PR Data $79.95

$65.00

Another way to get a property appraised is to hire a professional appraiser. An appraiser is able to get a better estimate of the property because it breaks down a property into its three main components:

1. the cost of wasteland

2. replacement value of the house and any other improvements

3. landscaping

Sometimes it can be a subjective decision on how much premium to add for having these three factors together in one place. Also, how do you rate a view? Is it possible to pay an extra $100,000 to have an ocean view? Around here, it seems so. Or how much does it cost to see the Byron Light House or the sound of the ocean to help you sleep? It can vary from person to person. I know of people who hated the lighthouse light flashing through their windows or the sound of the ocean keeping them awake at night. His course horses and assessment of these factors are open to interpretation.

An appraiser can cost you anywhere from around $300 for a typical 3-bedroom home to over $1000 for a property over $1 million or for farmland or large acreage.

The main values ​​in the Ríos del Norte are:

Hoolahans in Ballina and Lismore 6686 6130

Allsops in Lismore 6621 8933

Bennett and Frogley in Byron 6680 9969

My rule of thumb is to deduct 5% from the valuation provided by an agent and add 5% to the valuation provided by a professional appraiser. They are often quite conservative in their estimates.

replacement value

Another interesting variable in home valuation is the replacement value of a building. This cost has changed mainly due to the rapid increase in the cost of building materials. Also, the good builders in this area are not short of work, which is why they have been raising their prices. I’ve had a few stories on my desk of people delaying construction plans only to find that costs have risen so high that they haven’t been able to continue. I find it amusing that everyone hears about the wealth pouring into big Australian companies like BHP and Blue Steel, but they don’t realize how it affects them until they decide to go and build a house. Builders have told me that materials like colorbond roofing and copper wiring have increased more than 50% in the last few years.

So these costs have caused construction expenses to increase substantially. A home project builder like Parry Homes has been less affected than independent builders. They used to be able to build brick veneers on top of concrete slabs for less than $800/sqm and now they cost around $1000sqm. Building a good quality home with better-than-average hardwood floors and fixtures will now cost $1,500-$2,000 M2, less for the garage and decks. A couple of years ago you could build a good quality architect designed house for $1000 to $1200 per M2.

Equity financing mortgage

One of the newer financing options offered by boutique loan lenders is the Equity Financing Mortgage – EFM. I don’t see the advantage of this for anyone other than people who find it difficult to put together the full deposit. Basically, the lender gives up some of the deposit money, but then the shares increase when the property is finally sold. Of course, the banks got a good deal and by investing 20% ​​of the deposit money and then having the mortgagee pay 100% of the interest payments, they can expect to earn up to 40% of the capital gain on the time of sale. But still, this can be a good option for first-time homebuyers who just need a little help with that deposit. Please call me if you’re in this position. We’ll put you on the best deal available at least, whether it’s an EFM or something else that can get you into the deal without too much pain.

This is not true for the other specialty loans I have discussed in the past. Both the cash flow loan and the reverse mortgage can be quite burdensome for the borrower unless you look closely at the fine print. The cash flow loan is where you can get a discount on the interest paid in the first few years, but then it is added when the honeymoon rate is due. This is the variety of loan that was oversold in the United States and is the main cause of the subprime mortgage debacle. As these low rates expire and the poor bettors who were duped by these loans wake up to the higher rate, many will have to sell in a rapidly deflating housing market.

The reverse mortgage has been developed to help the large number of retirees who have substantial equity in their homes. The idea is that they can have a single payment or a monthly stipend so that they can access that capital without having to worry about interest payments. But, of course, there is no free lunch and it is time to settle the account when the owner shuffles the deadly coil and his heirs discover that he has eaten a substantial part with interest rates and broker fees higher than normal. This loan may be suitable for some seniors who aren’t astute money managers, but for most there is a much better way to access a line of credit for this purpose without burdening yourself with the extra costs.