Estate tax liability. Disposition of assets. Divorce. Probate. There are many situations -- none of them lacking stress and complexity -- where you might need an appraisal of property that states an opinion of what the property was worth on a date some time ago, rather than when the appraisal is ordered. For estate tax purposes or disposition of the assets of a decedent, a "date of death" valuation is often required.
A Date of Death appraisal is a retroactive or retrospective appraisal often used when settling an estate. In a Retrospective Appraisal, the value that is being determined is the value at a prior date (the Effective Date), regardless of the date the inspection takes place; the current value is not relevant, and any market changes that have occurred since the Effective Date are ignored.
When an estate has a transfer of ownership due to death, it is very common for a Retrospective Appraisal to be used for tax purposes or inheritance distribution using the date of death of the owner of the property as the Effective Date; hence the term “date of death” appraisal.
How it Works: Estate or probate appraisals are commonly ordered between 2-6 months of the death of a loved one (or inheritance of property), though sometimes the appraisal is ordered within weeks, while other times there is a much more substantial time period. Typically a family member or heir chooses an appraiser for the job at hand, or an attorney or accountant will order the appraisal. Sometimes, the executor of the estate may choose to have the Effective Date be six months after the date of death -- but the same principles apply.
In addition to needing a retrospective value during the estate planning or probate process, sometimes the ordering party will also request a current “as is” market value or value based upon the date the title transferred from the deceased to the heir (if the transfer was after the date of death). In these cases there are really two appraisals being done since there are two separate values issued. Most of the time only one appraisal is needed though, but every situation is unique and it all depends on the particular needs of the estate.
This is one of those things that many of us don’t know much about until we actually experience it personally. If you are in a situation where a loved one has passed or you recently inherited a property, I hope this information will help give you some insight into the process of estate planning as it pertains to real estate appraisals. Attorneys, accountants, executors and others rely on Hillside Real Estate Appraisal & Broker for "date of death" valuations because such appraisals require special expertise and training. They require a firm that's been in the area for some time and can effectively research comparable contemporaneous sales.
How To Choose Comparables
The careful selection of comparables is very important to arrive at the right value. How I choose the right comparables is to take a look at the entire list, then determine a range of sales: low medium and high. The low range selections relate to either fixer upper or all vintage, the medium range of comparables relate to Good condition, but only some renovations, the HIGH caliber of comparables are highly remodeled with granite, all new baths and kitchen, appliances and new flooring. Every comparable tries to fit within 20% GLA sq ft size, and try to find the most recent 0-90 day sale date. So when a home is a Fixer Upper and vintage category as the house had a bathroom with problems and other vintage appeal will have comparables selected from that lower range of choices. Upon renovation if that same home has new appliances, a newer finished basement and the bathroom has new tile and is fixed with no cost to cure items then it will compare to a medium range. High caliber homes stand out as exceptionally remodeled and sell for the highest prices.
As far as a % of error, remember that an appraisal is an OPINION of market value as if it was going to be sold in the current market condition. Comparing one appraisal to another mostly will relate to which addresses were selected, and assuming that both were done at the same time frame, had all the same choices.
There is not a set % of error when it relates to one appraisal report either, if done correctly, the final value really is what a house would sell for in THAT condition and with those sales being used for comparison.
An appraiser who does not ask the condition prior to selecting comparables could have a real problem. If he/she assumes the home is highly renovated and many sales are in a certain range, but then upon viewing the inside finds out that it is a fixer upper or simply modest...comparing that house to all highly renovated comparables would be a true mistake...and the final value will end up wrong. Making Condition adjustments for one or two bathrooms not renovated, or other flooring, should be a minimal adjustment if all the comparables were selected from the Right caliber or category in the first place. This brings me back to the Low Med High range.
In my report I include a page called Comparables Evaluated, and that page shows that full range of all that COULD have been selected. More often than not, newer year built homes and larger sq ft, or larger lot homes will fall in to the HIGH price range category on that list. Selecting all HIGH range homes could end up with a lot of "misses" when comparing it to a house if lot size is way off or year built is way off, again bringing a wrong conclusion at the end.
One thing you can look for is the Unadjusted Range of the sales prices, and the Adjusted Range of values (top and bottom lines of the sales grid) If you have unadjusted sales prices that are simply too wide, then something is either off...or there were just no sales that were recent enough that could have been chosen. In the Adjusted Range of values, often, the + and - adjustments tend to equalize a bit, if that range exceeds 20% between the low and high, then it points to one comparable was too high or too low in the group, and maybe the range is too wide again.
One major factor when initially selecting comparables is bracketing. Bracket the sq ft, bracket the lot size, meaning selecting some larger and some smaller. Having an "across the board" upward or downward adjustment might point to the fact that there is an odd feature of the home compared to the comparables that could have been selected, OR it could mean that there were no recent comparables that were on the other side to accomplish bracketing. The lenders see an "across the board" adjustment all positive or all negative means that a comment needs to be added. Also the solution is to simply look at older sales dates, find one that DOES bracket and include that comparable as a bracketing pivot property that meets the lender's demands. It is easier to find one old sale than to explain why there were none available. In the case though of a Huge lot size, where there really is no possible bracketing, then often times a lower adjustment dollar figure is used, such as a FLAT dollar figure, or just $1/sq ft lot size adjustment instead of $5. The reason why is to not over value excess land that is not sub dividable or partitionable.
Reprinted with permission from Gustavo Gonzalez, Valley View Properties, San Jose, CA
Avoid Paying Increased Property Taxes When Moving
Are you over 55 and worried about the tax implications when you purchase or relocate to a new location? If so, you aren't alone. Individuals 55 and over find themselves approaching retirement age and becoming the empty nesters: Their housing needs change along with their lifestyles but inflation and taxes keep increasing. That is where Proposition 60 and Prop 90 can help.
What is Prop 60? Proposition 60 is a constitutional amendment, approved by California voters, that provides property tax relief under certain circumstances. Prop 60 allows qualifying property owners to replace their primary residence with a new home of equal or lesser value and maintain their same tax base. With Prop 60, what is transferred is the Proposition 13 or "base year value" of the old home, which can be substantially less than the current market value of either home.
How can I qualify for Prop 60? Both the original home and the new home must be located in the same county. Both the original and replacement properties must be your primary residence. Both properties must be eligible for the Homeowner's Exemption or Disabled Veteran's Exemption. The seller or spouse residing in the home must be at least 55 years old when the original property is sold. The replacement home must be of equal or lesser value than the current market value of the original home. There is some wiggle room within this rule, depending on when the new property is purchased. For the purchase of a home that occurs 1 to 2 years after the sale of the original home, the "equal or lesser" rule can change slightly. If the replacement home is purchased or moved into within one year you can purchase up to 105% of the value of the original home. If within two years, you can go up to 110% of the value. purchase of the replacement property must be completed within two years of the sale of the original property in order to qualify for Prop 60. Application for tax relief must be filed within 3 years of the purchase of the new home. This is a once in a lifetime benefit. Neither spouse can file again.
How do I file for Prop 60 tax relief? Contact your county assessor's office. The assessor will determine if the transaction qualifies and provide you with the claim forms.
What is Proposition 90? Prop 90 is an amendment that permits the property owner to carry the benefits of Prop 60 throughout California. Each county in California has the option to accept tax base transfers from other counties, allowing qualifying homeowners more flexibility when planning a move. Counties are not required to participate, and currently there are only 7 counties in California that accept Prop 90. These counties include Los Angeles, Orange, Ventura, San Diego, Alameda, San Mateo and Santa Clara. This number changes, as counties have the option to repeal their participation, so check before making a move.
Prop 60 and Prop 90 are great extensions of Proposition 13, which was the initial break offered to the property tax paying public. If you think either might be something that will work for you, please consult your tax advisor or your county assessor for details.
Quick answer followed by a well written article from https://www.themortgagereports.com
Is a complex less than 25% commercial? When a lender's HOA Certification Request is requested for completion by the Property Management company, the lender is asking what percentage of commercial as compared to the residential portion is a critical percentage to be a Warrantable building and they are looking for less than 25%. The commercial calculation starts with the entire commercial building portion sq ft plus their parking lot. The Residential Condominium portion includes: all residential building sq ft and hallways, all the residential patio areas tennis court and patio, clubhouse areas, plus the residential parking lot and lobby, all balconies and private use patios are also for residential exclusive use. Start with the commercial sq ft, divide it by the total building sq ft (commercial and residential together) and obtain the percentage. The property manager hopefully has this complete information in their files...but the questionnaire form simply asks for the percentage as provided by the HOA.
How many are owner occupied? Fannie Mae allows owner occupied and second home applicants to have more than 50% rentals in a complex, but for anyone seeking a non owner occupied, the loan might be declined if it was over 50% already. Cash buyers have no restrictions of course.
Reserves? Fannie Mae is also asking for 10% reserves. To determine whether the association has a minimum annual budgeted replacement reserve allocation of 10%, divide the annual budgeted replacement reserve allocation by the association’s annual budgeted assessment income. There are exceptions in the FAQ page.
From The Fannie Mae site:
Blank form for the Fannie Mae Condo Project Questionnaire
Warrantable & Non-Warrantable condo mortgage rules Updated (2017)Buying a condo is a lot like purchasing a "regular" home, but with one big difference -- mortgages are tougher to come by.
Lenders impose a different set of rules on you when you buy a condo. They may sometimes increase your interest rate.
The most experienced and professional mortgage lenders can help you navigate the condo financing maze. With condos and co-ops, it’s not just your creditworthiness the lender has to worry about. It must also verify the fiscal and physical health of the entire development into which you're buying.
Fortunately, with the housing market in recovery and condo values climbing, mortgage lenders allow looser guidelines -- even low- down payment home loans Expect condominium and housing cooperative financing opportunities to remain high into 2017.
Conforming mortgage rules for condos
The majority of homebuyers use "conforming" mortgage financing.
This means that their loan purchased by one of two government-sponsored entities -- Fannie Mae or Freddie Mac -- and that the loan meets the two group's minimum standards.
Fannie Mae and Freddie Mac use the term "warrantable" to describe condominium projects and properties against which they'll allow a mortgage.
Condo projects and properties which don't meet Fannie Mae and Freddie Mac warrant ability standards are known as non-warrantable.
Non-warrantable condos are more challenging to finance.
Typically, a condo is considered warrantable if:
Manufactured housing projects and other developments which are not legally considered real estate are also excluded from warrant ability. These include house boat and motor home projects.
When buying a condo, ask your real estate agent or lender about the building's warrant ability before you go any further.
A warrantable condo typically gets you lower mortgage rates than a non-warrantable condo. Warrantable condos create lower risk for the bank.
FHA and VA mortgage rules for condosVA and FHA home loans are government-backed mortgages. FHA loans are insured by the Federal Housing Administration. VA Loans are loans guaranteed by the Department of Veterans Affairs.
Both loan types are known for their more flexible lending guidelines than conforming mortgage financing. Loans are available in all 50 states.
The FHA and VA maintain lists of approved communities, but don't despair of the unit you want isn't in a development on those lists. Both agencies have made it easier for condo and co-op associations to get their buildings approved.
In fact, the FHA recently changed its condo approval rules to help more borrowers get qualified.
Some of the new basic requirements for an FHA condo loan now include:
Neither the FHA nor the VA charge borrowers extra to finance a condominium or a co-op. You can get a condo loan with the same FHA or VA mortgage rate as you could a single-family home.
Mortgages for non-warrantable condos Mortgage financing is a more of a challenge for buyers of non-warrantable condos. There are fewer available programs for these dwellings.
In general, a condo or co-op unit is considered non-warrantable if:
Non-warrantable condo financing is unavailable via Fannie Mae and Freddie Mac, the FHA or the VA. To get a non-warrantable condo mortgage, you'll need to talk with a specialty lender.
Finding a non-warrantable condo lenderWhen you buy into a condominium community, mortgage lenders apply extra scrutiny to the application -- both you and your future HOA must comply with a set of underwriting guidelines.
“This is because you are not the only person responsible for the condition and upkeep of the condo – it’s also up to the condo association, which is accountable for maintaining the exterior and
common areas,” says Ginger Wilcox, chief industry officer at Sindeo, a San Francisco-based mortgage marketplace.
"The lender wants to know whether the property is a good risk, and the sales process could be delayed or canceled if the condo association has financial problems or the common property isn’t maintained well.”
Scarlett Tassone, Vice President and mortgage banker with PrivatePlus Mortgage in Atlanta, says mortgage loan providers each have different rules and stipulations regarding financing for a condo.
“Fannie Mae and Freddie Mac each have a set of requirements that every condo association has to meet – such as the minimum amount of funds the association has in reserves, the amount of tenants past due on their homeowners association fees, the amount of units that are rentals or investment properties, et cetera,” says Tassone.
Should you skip a condo in favor of a town home?If you are eyeing a town home instead, securing financing may not be quite as complicated. That’s because town homes are treated similarly to single-family residences by lenders.
“With a town home, the borrower owns the lot and the walls. Although they pay fees to a homeowners association, the HOA is only responsible for neighborhood upkeep and use of neighborhood facilities,” says Tassone.
Town homes are considered “zero lot line” homes. In other words, you share a wall and the line between your lot and your neighbor's is essentially zero.
This type of property may or may not lie within a planned unit development (PUD). Either way, finance underwriting guidelines similar to those for single-family homes apply.
“The underwriting process for fee-simple properties with a homeowners association is currently significantly easier than for condo association properties,” notes Gnocchi.
Size matters for condos and town homesHowever, whether it’s a condo or town home, expect more attention from the lender if the unit is part of a smaller complex/building.
When the lending market is tight, it is often difficult to get loans on complexes with four or fewer units, according to Dana Graham, agent with Berkshire Hathaway Chairman’s Circle in Rolling Hills Estates, Calif.
"Lenders often view the risk as high because, if one of the owners gets in trouble and doesn’t pay his HOA dues, for example, that represents 25 percent of the owners in a four-unit building.”
Get unapproved condos approvedIf possible, ask your real estate agent for help in recruiting the HOA/condo association to assist you in getting the property approved for financing. Be sure the association provides all the numbers and paperwork the lender requests.
Recent changes to condominium guidelines by Fannie Mae and Freddie Mac have made securing approval easier for Hoes, and many mortgage lenders are equipped to help with the process.
Tassone says to be aware of the cost of condo or association documents. “Most property management companies will not provide any documents free of charge, and the cost of these documents can range from $200-$500 or more.”
If the property is ultimately not approved by the lender, consider hunting for an approved multifamily property, or one with lower or no association fees.
“Try to be open-minded and find an experienced REALTOR® and lender who can walk you through the process and help you get those new keys,” says Gnocchi.
Lastly, be aware of the financial risks of owning a town home or condo; these properties may not appreciate as quickly as single-family homes.
Alternative financing for non-warrantable condos and town homesWhile mortgages backed by the FHA, VA, Freddie Mac and Fannie Mae dominate the market, they aren't the only options available.
Non-conforming mortgages are offered by institutions or groups of investors that make their own rules, and some may be willing to finance an unapproved condo, especially if the applicant is very strong and has a substantial down payment.
Smaller local banks can loan on these kinds of projects to support their communities, and other portfolio lenders (those that don't sell their loans and keep them on their own books) may offer mortgages designed especially for unapproved condos.
Reprinted from www.finance.yahoo.com/realestate:
Increase home's value
1. An updated kitchen. "Kitchens are critical," says Robert Irwin, author of "Home Buyer's Checklist." "Today, people like a big kitchen with a lot of workspace."
They look for solid surface counters and high-quality flooring, such as wood, laminate, tile or stone. And they want newer appliances in working order.
Even if it's not huge, it should have "countertops that are servicable, that aren't going to have to be replaced soon and cabinetry in good condition," says Alan Hummel, past president of the Appraisal Institute. "It has to be well-appointed and large enough to fit your needs."
It also doesn't hurt if it opens onto another room. "A lot of families are looking for that openness," says Hummel.
It helps to have a window over the sink, says Don Strong, a remodeler with Brothers Strong Inc., a Houston remodeling firm.
Be wary if renovations are out of character with the community, such as granite countertops in a subdivision where plastic laminate is the norm.
"Will you sell faster? Yes," says Hummel, CEO of Iowa Residential Appraisal Co., in Des Moines. "Will it sell for more? Not if the appointments you've done are significantly higher quality than the rest of the neighborhood."
2. Modern bathrooms. Buyers are looking for "master baths that give a little room to roam," says Hummel.
A big asset is a spa or a whirlpool tub. "I'm always entertained by the people who have them in the master bath and don't use them," says Ron Phipps, principal broker with Phipps Realty & Relocation Services in Warwick, R.I. "But it's a big feature."
Some other features buyers are seeking are separate showers with steam and/or multiple jets, a double sink, and a separate room for the toilet.
And make sure the plumbing and water heater can handle the job. The pipes have to be large enough to carry an adequate volume of water and the water heater has to be big enough to accommodate it. "You need a bare minimum of a 75-gallon hot water heater and most of my customers have 100 to 150," says Chicago-based home inspector Kurt Mitenbuler.
"You don't want to see that false economy of a $30,000 bathroom but nobody spent a few thousand dollars to upgrade the pipes," he says.
3. A well-appointed master suite. "People are really excited about master suites," says Hummel. The wish list: A luxurious bathroom, lounging areas and walk-in closets.
4. Natural materials. "People like natural materials," says Phipps. "Ceramic tile, hardwood floors, granite. We've gone back to a real appreciation for historically true materials. And simulated works as well. The look is very popular."
In floor coverings -- especially bathrooms or kitchens -- look for ceramic tile or wood rather than linoleum, which can tear, says Strong.
In the rest of the house, wood or laminate products are a plus over wall-to-wall, says Gary Eldred, author of "The 106 Common Mistakes Homebuyers Make (and How to Avoid Them)."
But if you have carpet, it should be a good product and well-maintained so that "a person doesn't have to walk in and think, 'I'm going to have to spend five grand right off the bat," says Strong.
5. Curb appeal. First impressions are everything. A house that appears tidy and well-cared-for will sell more quickly and for more money. A good first appearance can add as much as 10 percent to the value of the home.
6. A light, airy, spacious feel. "People buy space and light," says Myra Zollinger, owner/broker with Coldwell Banker Realty Center in Chapel Hill, N.C. "I have yet to have anybody walk into a really dark house and say, 'I love this.'"
Richard "Dick" Gaylord, president-elect of the National Association of Realtors, agrees. "That's a very big feature," he says. "I haven't sold many homes that aren't bright and airy."
7. Good windows. "People are looking at exposures and windows," says Phipps. "It's been a cold winter for most of the country and energy efficiency is very important."
Insulated windows are always a plus, says Strong. "Typically, they pay for themselves in five years," he says. The cost for an average 2,600-square-foot home is estimated at about $10,000 for new windows, he says.
Well-placed skylights are also a good touch to add value, says Phipps.
8. Landscaping. Mature trees "are worth $1,000," says Strong.
And having outdoor spaces with touches such as pergolas and Victorian garden swings "can be very helpful," says Phipps.
Appraiser John Bredemeyer remembers one $250,000 home in Omaha that had no landscaping at all. "It was stark," says Bredemeyer, former national chair of government relations for the Appraisal Institute, a professional group for real estate appraisers. "It just stood out as unappealing."
Conversely, you don't have to spend a fortune on plants, either. Just keep it "typical with the neighborhood," he says.
9. Lots of storage. Nothing beats an oversized garage, some attic space and plenty of closets. "If you have a two-car garage, do you have extra space for those things we all have -- bicycles, lawn mower, snow blower?" says Hummel. "Space is important."
A nice plus in the master suite? "His and hers walk-in closets," says Irwin.
10. Basement. "If it's dry, it's a plus," says Kenneth Austin, co-author of "The Home Buyer's Inspection Guide." "But it's a negative if it has water problems."
A finished basement adds even more value. "Ten years ago, nobody cared," says Mittenbuler. "Now everybody wants them.
Sonja Troncoso is a Certified Residential Appraiser with over 20 years of experience.