An unbiased opinion of value, provided by a qualified real estate appraiser, is the first step toward a fair settlement between people who have opposing interests in the value of jointly owned property.

But an accurate appraisal is just the beginning.  If one party is buying out the equity of another, consideration should be given to the cost of selling on the open market.  Here is an example.

Suppose that a house sells for $300,000 and the mortgage payoff is $200,000.  That leaves $100,000, so the buyout should be $50,000, right?  Think again.  The costs associated with a $300,000 sale might be 10% to cover commissions and seller paid items.  With these costs figured in, the funds available after the sale closes would be $70,000.

But there is more.  When a buyer makes their offer, they often include an inspection contingency.  If the inspection reveals repair items, the seller may need to pay for those, or negotiate a lower price.

In our example, lets say the inspector finds a problem that requires a $4,000 repair.  Now the true equity is $66,000.

If one party is buying out the equity of another, $33,000 seems like a fair settlement.

My prior post showed median price appearing to have bottomed out with recent gains. Just what we read in the paper and hear on the news.  But what happens when we look at three segments of the market individually?  Traditional Sale median price is down, Foreclosure median price is down and Short Sale median price is down.  How can all three be down, yet when these sales are pooled together, we see an increase in the median?

The answer lies in the mix of sales.  If more sales occur in the higher priced segment, and fewer at lower prices, the median for all sales rises.  So we have not found the bottom price-wise, but it is good to see Traditional sales gaining ground compared to distressed sales.

The market started to decline at the beginning of 2007, seemed to bottom out late in 2009, then began to increase in 2010.  Hindsight shows that this was a stimulus market because things turned south again when the first-time buyer tax credit program ended. Now we are seeing improvement, but interest rates are at an all-time low.  We have yet to see what will happen when rates begin to rise.  Stay tuned!

During the past 12 years, I have completed over 3,000 residential real estate appraisal assignments. Give me a call if you have questions about residential property appraisal.

I  have broad experience in mortgage, divorce, estate and private sales.  Call or write if I can help you in your particular circumstance.

Scott Cullen   Certified Residential Appraiser

612.810.3491                                                                 scullen2@comcast.net