The purpose of an appraiser is to determine the fair market value of the home in question. While the lender will order the appraisal, it is the appraiser’s job to create an unbiased, professional opinion of the house, based on several factors. The general condition of the home will be assessed, although this is not the same as a home inspection, which will be more detailed. Some other factors that will be considered are the locale of the home, that is, the neighborhood and surrounding area, and the market value of comparable homes in the immediate area.
The resulting appraisal will help the lender determine how much they are willing to lend against the home, what type of a loan they will offer, how much of a down payment will be required, and, in many instances, what the interest rate on the home will be. You should get a copy of the appraisal; this will help you to ensure that you are not paying too much for the home. Understand that while the lender orders the appraisal, the buyer is responsible for payment, often included in the closing costs.
Most states have regulations concerning the licensing and certification of appraisers, although the requirements may vary from state to state. Most will include, however, are required amount of classroom and real experience, as well as a continuing education requirement.
Hiring a home inspector is a crucial part of the home selling and buying process. (Photo courtesy of Milldred Easterling)
On the surface, the home inspector may seem similar the appraiser, as they will also be looking at the condition of the house. However, the inspector is concerned with determining the actual physical condition of the building, including the mechanical and electrical systems and the structural integrity of the home and surrounding outbuildings.
For the mechanical inspection, the home inspector will be checking the condition and operation of the heating and air conditioning equipment. An inspection of the plumbing, both supply and drain systems, will also be performed. Structural inspections will include the condition of the roof, integrity of the framework and foundation, and may include a check for termite and water damage.
Other items the inspector will check are the condition of the electrical system, including code compliance, the condition of the interior walls, floors, windows and doors, as well as the insulation of the attic.
The inspection is initiated by the buyer and is not necessarily mandated. However, the home inspection can be a vital tool for the buyer when negotiating the final price. On pre-owned homes, the inspection may reveal defects, which can be required to be repaired before the new owner takes possession or the cost of which can often be subtracted from the asking price. Some states do not require licensing or certification for home inspectors. However, states that do will require classroom and on the job training, as well as continuing education. Many reputable inspectors belong to a professional association as well.
Real Estate Agents
Real estate agent, also called Realtors when the agent is a member of the National Association of Realtors, are licensed in their state to list properties for sellers and to help buyers find and negotiate on properties they wish to buy. A home can be bought or sold without a real estate agent; however, the agent will help the buyer to navigate the rules, regulations and laws involved in the process.
When working for the seller, a real estate agent may offer homes listed by his or her company, or may research homes offered by other real estate companies. Working with the buyers, the agent can help them find the house that best suits their needs and desires, at the price they can afford. The real estate agent representing the seller has a vested interest in the sale of the house as he or she is usually working on commission and does not get paid until the sale is made.
A real estate agent will help you prepare an initial offer on the property, based on a general assessment. Should your initial offer not be accepted, the real estate agent could continue to negotiate a price through counter offers. The agent may ask you to meet with a lender or mortgage broker to determine the amount of loan you can afford and the type or types of loans for which you qualify. Armed with this information, the real estate agent can more efficiently assist you in your home search, bypassing offers that are not feasible.
Real estate agents may work by themselves or with an agency. Many real estate agents will specialize in a particular field, such as residential properties or commercial properties. Some agents also work as property managers, usually working for clients that hold investment or rental properties.
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Title companies are the legal representation in the process. They will generate an abstract of the property in question, including a title search, which will determine if the seller has the legal right to sell. They will check for any outstanding judgments or liens against the property. This includes any taxes or other charges that were unpaid by previous owners. If not discovered and resolved, the new buyer could become responsible for these charges.
They will also check what is called the chain of title. This search will reveal if there are any unknown parties with legal interest in the home. For example, if a person was party to a deed and yet never signed over their share when it was sold, they would still have a legal claim to the property. The title company will discover this and advise on how to resolve the issue.
Generating the abstract can be complicated and will involve a lot of legal work; therefore, most title companies, also called abstract companies, are associated with or a part of a legal firm. Title companies are vital to ensuring that the new homeowner is protected from legal trouble that may arise later on, after the sale.
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Finally, we come to the mortgage company. In reality, there are three types of mortgage companies: the mortgage broker, the mortgage banker and the direct lender. While they may look the same to the buyer, there are distinct differences in how they operate and handle the loan. A major difference is where the mortgage funds actually generated. Let’s look at the mortgage broker first.
The mortgage broker does not actually have any money for loan funding. Rather, when they take the application for the loan from the buyer, they “shop around” to find a mortgage banker or direct lender, acting as an intermediary. Guidelines are made by the banker or lender, setting requirements for the loan. When a suitable banker or lender is found, the broker makes an offer to them.
Because the broker is not involved with the loan funding, they make their money on commissions in the form of points and origination fees. Once the deal is closed, the mortgage broker is no longer involved. All payments are sent to the actual lender, who will service the loan.
The mortgage banker operates in a different manner. The banker provides the loan funding, usually through a line of credit provided by a direct lender. The direct lender has certain guidelines set forth for the banker to use in determining applicant qualification. The mortgage loan is closed under the mortgage bankers name; however, the loan is then transferred to the direct lender, usually before the first payment is made.
Their profit comes from points charged to the consumer. Points, sometimes called “discount points,” are upfront monies paid by the borrower to lower the interest rate and/or monthly payments. Points can be a bit of a gamble, with the greatest benefit to the borrower occurring if they intend to stay in the home for a long term or for the life of the loan. Bankers may also profit from origination fees on the loan.
Finally, we come to the direct lender. The direct lender has its own money and creates the guidelines for borrower acceptance. The direct lender is usually a large institution with billions of dollars in assets. They may specialize in a particular type of loan, such as commercial or consumer loans. While they often deal through brokers and bankers, they can deal directly with the consumer as well.
Once closed, the terms of a loan cannot be changed, regardless of who ends up owning the loan, except through refinancing. However, it is quite common for a loan to be sold or transferred to another lender several times during the life of the loan.
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