A USDA Forest Service publication on heirs’ property ownership across the southern U.S. highlights a kind of land ownership prevalent among lower wealth, African Americans in the Black Belt South, central Appalachian whites, and Hispanic Americans in U.S. southwest colonia communities.
A meeting co-hosted by the Southern Research Station and the Federal Reserve Bank of Atlanta in July 2017 addressed heirs’ property challenges in the South.
The adoption of the Uniform Partition of Heirs’ Property Act by additional states has assisted farm and ranch heirs’ property owners in accessing assistance from the federal government. Photo by Jennie Stephens, Center for Heirs’ Property Preservation.
The report addresses heirs’ property both inside and outside of the Black Belt South—in places such as predominantly Hispanic colonia communities in the U.S. southwest, in central Appalachia, and on tribal lands. It includes presentations by grassroots and legal service organizations that work directly with families to get clear title to their property.
Heirs’ property is real property and a subset of ‘tenancy-in-common’ ownership. It is typically inherited land owned by two or more family members – who acquire the property via state laws of intestate succession, rather than by formal means. This happens when someone dies without a will, and state laws (which can vary) determine how their interests in property are distributed among surviving family members.
“Landowners with unclear titles are typically not eligible for land improvement and other federally funded programs,” says Johnson Gaither. “The lack of title also limits property owners’ ability to access credit and to sell natural resources, which results in both land and wealth loss for affected families. However, recent legislation such as the 2018 Farm Bill contains provisions to help eliminate barriers to USDA programs.”
The 2019 SRS publication is based on findings presented at a 2017 conference that brought a diverse group of stakeholders together to address heirs’ property challenges in the South. USFS photo.
The report includes chapters that focus on parcel data sources, in-depth investigations of heirs’ property owners, research on cultural aspects of heirs’ property ownership, estimations of the extent of heirs’ property in the South, and both actual and proposed ideas for legal reform to make heirs’ property ownership more viable and valuable.
Johnson Gaither’s co-editors include Ann Carpenter, director of policy and analytics for community and economic development at the Federal Reserve Bank of Atlanta, Tracy Lloyd McCurty, executive director of Black Belt Justice, and Sara Toering, senior fellow with the Center for Community Progress.
The report has received significant recognition since it was published and was most recently featured on VICE news, a documentary series that airs on the Showtime network. The April 26 episode, Losing Ground, highlighted the vulnerabilities of African American landowners who hold heirs’ property and have suffered from involuntary land loss.
“It was wonderful to see an SRS publication highlighted on the program,” exclaims Johnson Gaither. Since the show aired, we’ve received direct feedback from landowners who shared that the publication provides a tangible source of information and reference for them as they attempt to resolve heirs’ property issues.”
It is conservatively estimated that there are more than 1.6 million acres of heirs’ property with a value of $6.6 billion in counties of the demographically defined Black Belt of the South. A first step to decreasing these numbers is a better understanding of the extent and characteristics of these properties, to help American landowners more fully realize the value of their lands.
The money you make on the sale of your home might be taxable. Here’s how it works and how to avoid a big tax bill.Tina OremAugust 5, 2020
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
It feels great to get a high price for the sale of your home, but watch out: The IRS may want a piece of the action. That’s because capital gains on real estate are taxable sometimes. Here’s how you can minimize or even avoid a tax bite on the sale of your house.
How does a capital gains tax work?
The IRS and many states assess capital gains taxes on the difference between what you pay for an asset — your basis — and what you sell it for.
Capital gains taxes can apply to investments, such as stocks or bonds, and tangible assets like cars, boats and real estate.
The good news about capital gains on real estate
The IRS typically allows you to exclude up to:
$250,000 of capital gains on real estate if you’re single.
$500,000 of capital gains on real estate if you’re married and filing jointly.
For example, if you bought a home 10 years ago for $200,000 and sold it today for $800,000, you’d make $600,000. If you’re married and filing jointly, $500,000 of that gain might not be subject to the capital gains tax (but $100,000 of the gain could be).
The bad news about capital gains on real estate
Your $250,000 or $500,000 exclusion typically goes out the window, which means you pay tax on the whole gain, if any of these factors are true:
The house wasn’t your principal residence.
You owned the property for less than two years in the five-year period before you sold it.
You didn’t live in the house for at least two years in the five-year period before you sold it. (People who are disabled, and people in the military, Foreign Service or intelligence community can get a break on this part, though; see IRS Publication 523 for details.)
You already claimed the $250,000 or $500,000 exclusion on another home in the two-year period before the sale of this home.
You bought the house through a like-kind exchange (basically swapping one investment property for another, also known as a 1031 exchange) in the past five years.
If it turns out that all or part of the money you made on the sale of your house is taxable, you need to figure out what capital gains tax rate applies.
Short-term capital gains tax rates typically apply if you owned the asset for less than a year. The rate is equal to your ordinary income tax rate, also known as your tax bracket. (What tax bracket am I in?)
Long-term capital gains tax rates typically apply if you owned the asset for more than a year. The rates are much less onerous; many people qualify for a 0% tax rate. Everybody else pays either 15% or 20%. It depends on your filing status and income.
How to avoid capital gains tax on a home sale
Live in the house for at least two years. The two years don’t need to be consecutive, but house-flippers should beware. If you sell a house that you didn’t live in for at least two years, the gains can be taxable. Selling in less than a year is especially expensive because you could be subject to the short-term capital gains tax, which is higher than long-term capital gains tax.
See whether you qualify for an exception. If you have a taxable gain on the sale of your home, you might still be able to exclude some of it if you sold the house because of work, health or “an unforeseeable event,” according to the IRS. Check IRS Publication 523 for details.
Keep the receipts for your home improvements. “The cost basis of your home not only includes what you paid to purchase it, but all of the improvements you’ve made over the years,” says Steven Weil, an enrolled agent and president at RMS Accounting in Fort Lauderdale, Florida. When your cost basis is higher, your exposure to the capital gains tax is lower. Remodels, expansions, new windows, landscaping, fences, new driveways, air conditioning installs — they’re all examples of things that can cut your capital gains tax, he says.
About the author: Tina Orem is NerdWallet’s authority on taxes. Her work has appeared in a variety of local and national outlets. Read more
Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page. However, this does not influence our evaluations. Our opinions are our own.
You don’t have to be rich to need estate planning. Your estate includes everything you own, and it can be any size, which is why it can be worth taking time to plan for what happens to it.
What is estate planning?
Estate planning is the process of designating who will receive your assets and handle your responsibilities after your death or incapacitation. One goal is to ensure beneficiaries receive assets in a way that minimizes estate tax, gift tax, income tax and other taxes.
Estate planning can help establish a platform you can fine-tune as your personal and financial situations change. The key question to ask yourself is: How do you want your assets distributed if you die or are incapacitated?
Seven steps to basic estate planning
1. Inventory your stuff
You may think you don’t have enough to justify estate planning. But once you start looking around, you might be surprised by all the tangible and intangible assets you have.
The tangible assets in an estate may include:
Homes, land or other real estate
Vehicles including cars, motorcycles or boats
Collectibles such as coins, art, antiques or trading cards
Once you inventory your tangible and intangible assets, you need to estimate their value. For some assets, outside valuations like these can help:
Recent appraisals of your home
Statements from your financial accounts
When you don’t have an outside valuation, value the items based on how you expect your heirs will value them. This can help ensure your possessions are distributed equitably among the people you love.
2. Account for your family’s needs
Once you have a sense of what’s in your estate, think about how to protect the assets and your family after you’re gone.
Do you have enough life insurance? This may be important if you’re married and your current lifestyle — and monthly mortgage payment — requires dual incomes. Life insurance may be even more important if you have a child with special needs or college tuition bills.
Name a guardian for your children — and a backup guardian, just in case — when you write your will. This can help sidestep costly family court fights that could drain your estate’s assets.
Document your wishes for your children’s care. Don’t presume that certain family members will be there or that they share your child-rearing ideas and goals. Don’t assume a judge will abide by your wishes if the issue goes to court.
A complete estate plan includes important legal directives.
A trust might be appropriate. With a living trust, you can designate portions of your estate to go toward certain things while you’re alive. If you become ill or incapacitated, your selected trustee can take over. Upon your death, the trust assets transfer to your designated beneficiaries, bypassing probate, which is the court process that may otherwise distribute your property.
A medical care directive, also known as a living will, spells out your wishes for medical care if you become unable to make those decisions yourself. You can also give a trusted person medical power of attorney for your health care, giving that person the authority to make decisions if you can’t. These two documents are sometimes combined into one, known as an advance health care directive.
A durable financial power of attorney allows someone else to manage your financial affairs if you’re medically unable to do so. Your designated agent, as directed in the document, can act on your behalf in legal and financial situations when you can’t. This includes paying your bills and taxes, as well as accessing and managing your assets.
A limited power of attorney can be useful if the idea of turning over everything to someone else concerns you. This legal document does just what its name says: It imposes limits on the powers of your named representative. For example, you could grant the person the power to sign the documents on your behalf at the closing of a home sale or to sell a specific stock.
Be careful about who you give power of attorney. They may literally have your financial well-being — and even your life — in their hands. You might want to assign the medical and financial representation to different people, as well as a backup for each in case your primary choice is unavailable when needed.
4. Review your beneficiaries
Your will and other documents may spell out your wishes, they may not be all-inclusive.
Check your retirement and insurance accounts. Retirement plans and insurance products usually have beneficiary designations that you need to keep track of and update as needed. Those beneficiary designations can outweigh what’s in a will.
Make sure the right people get your stuff. People sometimes forget the beneficiaries they named on policies or accounts established many years ago. If, for example, your ex-spouse is still a beneficiary on your life insurance policy, your current spouse will get the bad news — and none of the policy’s payout — after you’re gone.
Don’t leave any beneficiary sections blank. In that case, when an account goes through probate, it may be distributed based on the state’s rules for who gets the property.
Name contingent beneficiaries. These backup beneficiaries are critical if your primary beneficiary dies before you do and you forget to update the primary beneficiary designation.
5. Note your state’s estate tax laws
Estate planning is often a way to minimize estate and inheritance taxes. But most people won’t pay those taxes.
At the federal level, only very large estates are subject to estate taxes. For 2020, up to $11.58 million of an estate is exempt from federal taxation. In 2021, up to $11.7 million is exempt.
Some states have estate taxes. They may levy estate tax on estates valued below the federal government’s exemption amount. (See which states have an estate tax here.)
Whether you should hire an attorney or estate tax professional to help create your estate plan generally depends on your situation.
If your estate is small and your wishes are simple, an online or packaged will-writing program may be sufficient for your needs. These programs typically account for IRS and state-specific requirements and walk you through writing a will using an interview process about your life, finances and bequests. You can even update your homemade will as necessary.
If you have doubts about the process, it might be worthwhile to consult an estate attorney and possibly a tax advisor. They can help you determine if you’re on the proper estate planning path, especially if you live in a state with its own estate or inheritance taxes.
For large and complex estate — think special child care concerns, business issues or nonfamilial heirs — an estate attorney and/or tax professional can help maneuver the sometimes complicated implications.
Cash Entry: An entry that covered public lands for which the individual paid cash or its equivalent.
Credits: These patents were issued to anyone who either paid by cash at the time of sale and received a discount; or paid by credit in installments over a four-year period. If full payment were not received within the four-year period, title to the land would revert back to the Federal Government.
Homestead: A Homestead allowed settlers to apply for up to 160 acres of public land if they lived on it for five years and proof of cultivation. This land did not cost anything per acre, but the settler did pay a filing fee.
Indian Patents: Under the general Allotment Act of February 8, 1887, and certain specific laws for named tribes, allotments of land on reservations were made to individual Native Americans residing on the land. There are two kinds of patents that allowed resale by the Native Americans:
Indian Trust Patents were issued and held in trust for a period of twenty-five years. When the twenty-five years expired a direct sale of the land could be made.
Indian Fee Patent was the actual title to the property of land entirely owned by an individual and their heirs.
Military Warrants: From 1788 to 1855 the United States granted military bounty land warrants as a reward for military service. These warrants were issued in various denominations and based upon the rank and length of service.
The Land
Mineral Certificates: The General Mining Law of 1872 defined mineral lands as a parcel of land containing valuable minerals in its soil and rocks. There were three kinds of mining claims:
Lode Claims contained gold, silver or other precious metals occurring in veins;
Placer Claims are for minerals not found in veins; and
Mill Site Claims are limited to lands that do not contain valuable minerals. Up to five acres of public land may be claimed for the purpose of processing minerals.
Private Land Claims: A claim based on the assertion that the claimant (or his predecessors in interest) derived his right while the land was under the dominion of a foreign government.
Railroad: To aid in the construction of certain railroads. The Act of September 20, 1850, granted to the State alternate sections of public land on either side of the rail lines and branches.
State Selection: Each new State admitted to the Union was granted 500,000 acres of public land for internal improvements established under the Act of September 4, 1841.
Swamp: Under the Act of September 28, 1850, lands identified as swamp and overflowed lands unfit for cultivation was granted to the States. Once accepted by the State, the Federal Government had no further jurisdiction over the parcels.
Town Sites: An area of public lands which has been segregated for disposal as an urban development, often subdivided in blocks, which are further subdivided into town lots.
Town Lots: May be regular or irregular in shape and its acreage varies from that of regular subdivisions.
I am writing to invite you to attend the U. S. Department of Housing and Urban Development (HUD) Region IV Homelessness Virtual Conference that will be held on Tuesday, December 15, 2020. The Virtual Conference will be held using Teams Live Platform. This year for the first time, Tennessee Field Offices are collaborating with 8 other Field Offices in Region IV to host a regionwide Homelessness Conference. We plan on over 500+ individuals attending the Homelessness Conference. Attached is our Save the Date Flyer that provides information about the event. Our targeted audience is Mayors, Federal employees, State and Local agencies, Public Housing Authorities, Community Development Grantees, Homeless Providers, Property Managers and Landlords.
Registration information and the Teams virtual conference link will be sent separately next week.
We hope that you will be able to participate in this distinctive event. Should you have questions or need additional information feel free to contact:
George Brown
Asset Management Division Director
Cell: 202-355-8636
Office: 678-732-2813
Email: George.N.Brown@hud.gov
The real estate industry contributed to racial inequality and segregation in housing, an “outrage” that merits a historic apology, the incoming president of the National Association of Realtors (NAR) said.
“What Realtors did was an outrage to our morals and our ideals,” Charlie Oppler said Thursday during a virtual fair-housing summit hosted by the group. “It was a betrayal of our commitment to fairness and equality.”
It was the first time the association, with 1.4 million members, has apologized for its role in fomenting housing discrimination, a legacy that has contributed to widening economic and racial inequality. The homeownership rate among Black Americans was 46% as of Sept. 30, compared with 67% for all U.S. households and 76% for white Americans, Census Bureau data show.
Are You Ready?
The NAR opposed passage of the Fair Housing Act in 1968 and allowed exclusion of members based on race or gender, according to a statement from the group. That discrimination was part of systemic residential racial segregation, led by the federal government and supported by the U.S. banking system through practices like redlining, the NAR said.
Home equity is the biggest source of household net worth, according to Federal Reserve data, putting minorities at a disadvantage generation after generation. Black homebuyers continue to face hurdles, such as lower credit scores and less money for down payments, which limit their ability to get on the American Dream escalator of homeownership. A “Black tax” averages $13,464 during the life of their home loans to cover such costs as mortgage insurance and higher interest rates, according to a study by a Massachusetts Institute of Technology group.
The NAR opposed passage of the Fair Housing Act in 1968 and allowed exclusion of members based on race or gender, according to a statement from the group. That discrimination was part of systemic residential racial segregation, led by the federal government and supported by the U.S. banking system through practices like redlining, the NAR said.
Home equity is the biggest source of household net worth, according to Federal Reserve data, putting minorities at a disadvantage generation after generation. Black homebuyers continue to face hurdles, such as lower credit scores and less money for down payments, which limit their ability to get on the American Dream escalator of homeownership. A “Black tax” averages $13,464 during the life of their home loans to cover such costs as mortgage insurance and higher interest rates, according to a study by a Massachusetts Institute of Technology group.
Learn what LIHEAP is, how it works, what the application process is like and what kind of requirements the program has in our free guide. Get it today!
— Read on liheapassistance.org/applying-for-liheap/how-to-apply/
The housing choice voucher program is the federal government’s major program for assisting very low-income families, the elderly, and the disabled to afford decent, safe, and sanitary housing in the private market. Since housing assistance is provided on behalf of the family or individual, participants are able to find their own housing, including single-family homes, townhouses and apartments.
The participant is free to choose any housing that meets the requirements of the program and is not limited to units located in subsidized housing projects.
Housing choice vouchers are administered locally by public housing agencies (PHAs). The PHAs receive federal funds from the U.S. Department of Housing and Urban Development (HUD) to administer the voucher program.
A family that is issued a housing voucher is responsible for finding a suitable housing unit of the family’s choice where the owner agrees to rent under the program. This unit may include the family’s present residence. Rental units must meet minimum standards of health and safety, as determined by the PHA.
A housing subsidy is paid to the landlord directly by the PHA on behalf of the participating family. The family then pays the difference between the actual rent charged by the landlord and the amount subsidized by the program. Under certain circumstances, if authorized by the PHA, a family may use its voucher to purchase a modest home.
Am I eligible?
Michaelgouldgroup.com
Eligibility for a housing voucher is determined by the PHA based on the total annual gross income and family size and is limited to US citizens and specified categories of non-citizens who have eligible immigration status. In general, the family’s income may not exceed 50% of the median income for the county or metropolitan area in which the family chooses to live. By law, a PHA must provide 75 percent of its voucher to applicants whose incomes do not exceed 30 percent of the area median income. Median income levels are published by HUD and vary by location. The PHA serving your community can provide you with the income limits for your area and family size.
During the application process, the PHA will collect information on family income, assets, and family composition. The PHA will verify this information with other local agencies, your employer and bank, and will use the information to determine program eligibility and the amount of the housing assistance payment.
If the PHA determines that your family is eligible, the PHA will put your name on a waiting list, unless it is able to assist you immediately. Once your name is reached on the waiting list, the PHA will contact you and issue to you a housing voucher.
How do I apply?
If you are interested in applying for a voucher, contact the local PHA. For further assistance, please contact the HUD Office nearest to you.
Local preferences and waiting list – what are they and how do they affect me?
Since the demand for housing assistance often exceeds the limited resources available to HUD and the local housing agencies, long waiting periods are common. In fact, a PHA may close its waiting list when it has more families on the list than can be assisted in the near future.
PHAs may establish local preferences for selecting applicants from its waiting list. For example, PHAs may give a preference to a family who is (1) homeless or living in substandard housing, (2) paying more than 50% of its income for rent, or (3) involuntarily displaced. Families who qualify for any such local preferences move ahead of other families on the list who do not qualify for any preference. Each PHA has the discretion to establish local preferences to reflect the housing needs and priorities of its particular community.
Housing vouchers – how do they function?
The housing choice voucher program places the choice of housing in the hands of the individual family. A very low-income family is selected by the PHA to participate is encouraged to consider several housing choices to secure the best housing for the family needs. A housing voucher holder is advised of the unit size for which it is eligible based on family size and composition.
The housing unit selected by the family must meet an acceptable level of health and safety before the PHA can approve the unit. When the voucher holder finds a unit that it wishes to occupy and reaches an agreement with the landlord over the lease terms, the PHA must inspect the dwelling and determine that the rent requested is reasonable.
The PHA determines a payment standard that is the amount generally needed to rent a moderately-priced dwelling unit in the local housing market and that is used to calculate the amount of housing assistance a family will receive. However the payment standard does not limit and does not affect the amount of rent a landlord may charge or the family may pay. A family which receives a housing voucher can select a unit with a rent that is below or above the payment standard. The housing voucher family must pay 30% of its monthly adjusted gross income for rent and utilities, and if the unit rent is greater than the payment standard the family is required to pay the additional amount. By law, whenever a family moves to a new unit where the rent exceeds the payment standard, the family may not pay more than 40 percent of its adjusted monthly income for rent.
The rent subsidy
The PHA calculates the maximum amount of housing assistance allowable. The maximum housing assistance is generally the lesser of the payment standard minus 30% of the family’s monthly adjusted income or the gross rent for the unit minus 30% of monthly adjusted income.
Can I move and continue to receive housing choice voucher assistance?
A family’s housing needs change over time with changes in family size, job locations, and for other reasons. The housing choice voucher program is designed to allow families to move without the loss of housing assistance. Moves are permissible as long as the family notifies the PHA ahead of time, terminates its existing lease within the lease provisions, and finds acceptable alternate housing.
Under the voucher program, new voucher-holders may choose a unit anywhere in the United States if the family lived in the jurisdiction of the PHA issuing the voucher when the family applied for assistance. Those new voucher-holders not living in the jurisdiction of the PHA at the time the family applied for housing assistance must initially lease a unit within that jurisdiction for the first twelve months of assistance. A family that wishes to move to another PHA’s jurisdiction must consult with the PHA that currently administers its housing assistance to verify the procedures for moving.
Roles – the tenant, the landlord, the housing agency and HUD
Once a PHA approves an eligible family’s housing unit, the family and the landlord sign a lease and, at the same time, the landlord and the PHA sign a housing assistance payments contract that runs for the same term as the lease. This means that everyone — tenant, landlord and PHA — has obligations and responsibilities under the voucher program.
Tenant’s Obligations: When a family selects a housing unit, and the PHA approves the unit and lease, the family signs a lease with the landlord for at least one year. The tenant may be required to pay a security deposit to the landlord. After the first year the landlord may initiate a new lease or allow the family to remain in the unit on a month-to-month lease.
When the family is settled in a new home, the family is expected to comply with the lease and the program requirements, pay its share of rent on time, maintain the unit in good condition and notify the PHA of any changes in income or family composition.
Landlord’s Obligations: The role of the landlord in the voucher program is to provide decent, safe, and sanitary housing to a tenant at a reasonable rent. The dwelling unit must pass the program’s housing quality standards and be maintained up to those standards as long as the owner receives housing assistance payments. In addition, the landlord is expected to provide the services agreed to as part of the lease signed with the tenant and the contract signed with the PHA.
Housing Authority’s Obligations: The PHA administers the voucher program locally. The PHA provides a family with the housing assistance that enables the family to seek out suitable housing and the PHA enters into a contract with the landlord to provide housing assistance payments on behalf of the family. If the landlord fails to meet the owner’s obligations under the lease, the PHA has the right to terminate assistance payments. The PHA must reexamine the family’s income and composition at least annually and must inspect each unit at least annually to ensure that it meets minimum housing quality standards.
HUD’s Role: To cover the cost of the program, HUD provides funds to allow PHAs to make housing assistance payments on behalf of the families. HUD also pays the PHA a fee for the costs of administering the program. When additional funds become available to assist new families, HUD invites PHAs to submit applications for funds for additional housing vouchers. Applications are then reviewed and funds awarded to the selected PHAs on a competitive basis. HUD monitors PHA administration of the program to ensure program rules are properly followed.
To end homelessness, we must reduce the number of people who enter the criminal justice system from homelessness and prevent homelessness among people leaving criminal justice settings. USICH would like to spotlight the work of our partners at the Department of Veterans Affairs (VA) and their continued support to communities across the country.
Veteran-focused Courts
In June 2020, the VA released a fact sheet on Veterans Treatment Courts and other Veteran-focused courts served by the VA Veterans Justice Outreach (VJO) Specialists.
Veterans Treatment Courts are an alternative to the traditional criminal justice system that emphasize treatment for mental health and substance use disorders rather than punishment and incarceration. This short video describes the characteristics of Veterans Treatment Courts and the Veterans they serve.
Reentry Planning and Services
It is critical that communities across the country continue to strengthen reentry programming, including improving coordination with homelessness services and supporting targeted housing and services interventions for people leaving criminal justice settings who are at risk of homelessness. The VJO Program also provides in-reach for incarcerated Veterans to help put them on a path to stable housing.
Resources
Communities interested in learning more about these alternatives to criminalization may contact national coordinator Katie Stewart for questions about the VJO program.
If you know a justice-involved Veteran, email the VJO specialist nearest you for assistance accessing VA health care services.
Visit the Justice for Vets site to learn more about Veterans Treatment Courts.
TAKE CARE OF OUR VETERANS, BECAUSE THEY TAKE CARE OF US…
If you’re thinking of taking out a mortgage, you probably expect lots of paperwork. The lender will likely take a look at your income, debt, credit history, employment and assets, among other factors. There’s another loan element the lender will consider that may be less familiar: a home valuation.
It makes sense that a mortgage lender would want to know how much the property you intend to buy is worth. A seller can choose any listing price he wants — whatever they think someone is willing to pay, however, if the buyer needs financing then the selling price must be supported by market value (what like for like homes have sold for in the area)
Of course, most sellers keep in mind what comparable properties are going for, but there’s no requirement that the listing price reflects a reasonable value. And sellers usually have an incentive to inflate the price.
Appraisal
An independent property valuation helps the lender mitigate risk by ensuring that the home is actually worth at least the amount of the contract sales price.
The purchase price of a home is usually spelled out by the lender as being the contract sales price or the appraised value whichever is less.
If the home is appraised for less than the sales price, the seller would lower the sales price to the appraised value.
If the seller does not want to lower the purchase price, the buyer would be asked to make up the difference. The kind of valuation required depends on many factors.
These may include the type of home you’re looking to buy, the type of loan you’re applying for, the amount of equity in your home, your credit score and more. Here are some of the common ways that lenders may value homes.
Related: Mortgage calculator
How does a home appraisal work?
An appraisal can be an interior/exterior inspection, exterior only or drive by just to confirm the property is still there. But a full interior/exterior appraisal is an independent estimate of the home’s value by a licensed real estate appraiser and is based on a detailed inspection of the property.
The appraiser looks at factors like the location of the property, the condition of the home (both inside and outside), the size and layout of the home (including the number of bedrooms and bathrooms), the year it was built and any renovations that have been done.
Lenders rely on the appraiser’s market value to come up with the loan-to-value ratio of a property, which influences the amount they’re willing to lend and the terms of the loan.
When does an appraisal happen, and how much does it cost?
Lenders usually require a full interior/exterior home appraisal when issuing a new mortgage — though there are some exceptions, as you’ll see below.
The Mortgage Bankers Association recommended leveraging technology to eliminate manual appraisals on mortgages below $400,000.
Most lenders still order a full appraisal even though 68% of all homes fall under the $312,500 threshold. Jumbo loans — those that exceed the conforming loan limits set by Fannie Mae and Freddie Mac — generally require a full appraisal.
What if you get a low appraisal?
If the appraisal finds that the home is worth less, the lender may reduce the amount of the loan they’re willing to offer.
As the buyer, you can either opt to contribute the difference in cash or try to get the seller to reduce the price. Sellers may be willing to negotiate since other potential buyers are also likely to run into a low appraisal.
MichaelGouldGroup.Com 
You must be logged in to post a comment.