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Documenting Your Property's Market Value

5 of 9 in Series: The Essentials of Loan Modification

Lenders want to know about the market value of a property before approving a loan to purchase the property. The lenders want to make sure that the collateral is sufficient to secure the repayment of the loan.

When a lender wants to know your property value for a loan modification, however, the reason may not seem so clear. Actually, when applying for a loan modification, both you and the lender should want to know the property’s current market value for the following reasons:

  • To weigh the options: If the home has plenty of equity in it (meaning it’s worth a lot more than you owe on it), for example, refinancing or selling the property may be a better option.

  • To gauge the risk of any workout deal: The lender wants to know how much of its investment it’s likely to be able to recover if foreclosure is necessary.

  • To determine whether a short sale would be a viable option

  • To calculate a principal reduction in the event that it becomes a part of the loan modification

If your lender requires an appraisal, it will hire an appraiser and perhaps charge you for the appraisal. You may be able to obtain a pretty good estimate of your property’s true market value, in writing, for free or for a very reasonable fee by consulting a local real estate agent.

Many agents offer broker’s price opinions, or BPOs, for free in the hopes of someday earning the homeowners’ business and referrals to other potential clients. A BPO is also commonly referred to as a comparative market analysis (CMA) or home valuation. (In some areas, only appraisers are allowed to provide property valuations.)

Ask for a valuation that reflects what you could sell your house for within 30, 60, and 90 or more days of listing. This information gives you insight into what the agent would list the price for initially and reduce it to over time. The 90-day estimate is more conservative and probably more in line with the property’s true market value.

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