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Most Profitable Home Improvements To Make Before Selling Your Home

Getting ready to sell your house? You may want to consider these five home improvements to ensure a bigger price tag at closing time.

Unless you’re Joanna Gaines, the prospect of updating and prepping your home for sale can seem daunting. All those little repairs you were happy to postpone for another day (or year) may seem like glaring problems to a buyer once your home is on the market. So, what to do? Option one is to hope you luck into a buyer who will see your home not as it is now, but for what it could be. Option two is to put some money and time into a few repairs that will help get your home market-ready. Although the latter option may seem like a lot of hassle, it can translate to serious money — nearly a quarter of sellers who do home improvements sell their home above list price.

Thankfully, you don’t have to spend months (or many thousands of dollars) with a contractor to get your home ready — many small DIY home improvements can yield big returns on closing day. Here’s a look at five of the best.

Painting

Painting is the lowest cost improvement with the highest rate of return, so it’s not surprising that 36% of home sellers choose to do it, according to Skylar Olsen, Zillow’s Director of Economic Research. When trying to sell, a nice coat of neutral paint can give the entire house a facelift, and buyers really love to see a fresh blank canvas. “Consider getting color recommendations from a trained professional since paint colors can be tricky depending on lighting and other features in the house such as cabinets and flooring,” says Jennie Norris, chairwoman for the International Association of Home Staging Professionals. If you’re looking for a “safe” color, gray has been trending in recent years, Norris says.

Initial Cost of Investment: Professional painting of the interior of an entire 2,500 square foot house can be anywhere from $2,000-$4,000 depending on the market, according to Norris. If there are vaulted ceilings or a lot of detail work, it could be more.

If That’s Too Expensive, Consider: DIY, if you’re handy with a paintbrush. Buy a 5 gallon bucket of a neutral paint color (much cheaper than buying per gallon) and get to work. “At the very least, if you can’t do the painting yourself, wash your walls and declutter to create a nice open space,” suggests Lori Matke of homestagingexpert.com.

Landscaping Your Yard

The outside of your house is a buyer’s first impression when they pull up. A patchy or overgrown yard can be a major turn-off. Anything that’s dead should be removed, and anything that’s overgrown should be cut back. You can make sure the lawn is refreshed and green by re-sodding or planting grass seed, and you may want to do edging to help define spaces. Also, fresh mulch or straw in any beds is a must. “A few newly planted shrubs and perennials tucked in for good measure will make your house feel much more finished and inviting,” Matke suggests.

Initial Cost of Investment: Professional landscaping can cost anywhere between $500 – $3,000 (and higher if you add in tree removal) according to Matke.

If That’s Too Expensive, Consider: If you’re up for a little sweat equity, roll up your sleeves and remove anything dead yourself. You also don’t need a pro to purchase grass seed. Just follow the directions for planting, and keep it watered and mowed. “A good, sturdy garden rake can tidy up the borders, and instead of renting a lawn edger, a sharp, heavy-duty putty knife works just as well,” Matke says. For color, you can purchase a few bright annual flowers at your local garden shop and either plant them directly into the landscape around the house, or add them to pots near the front door.

Flooring

Replacing carpet or repairing flooring is an improvement that 26% of homeowners make, according to Zillow. If you’ve got lots of rooms with many types of flooring, you might want to bite the bullet and invest in new flooring for all, to create a seamless feel throughout the house. Wood floors, or even faux-wood floors, are preferable to carpeting even though those options can be more costly, Matke says. If, however, you can’t afford to upgrade to wood, new carpeting is still a major selling point. And just like with painting walls, a good neutral color is best.

Initial Cost of Investment: For professional flooring installation, expect to pay between $10 – $12 per square foot for faux wood, and up to $30 for real wood. An average quality carpeting will cost about $8- $12 per square foot, installed, says Matke.

If That’s Too Expensive, Consider: Some outlet centers have flooring stores, where you can sometimes find great deals on older styles that have been discontinued, Matke says. If an upgrade absolutely isn’t in the budget, then look to have your carpeting and hardwoods professionally cleaned. If you have a few worn/discolored areas on the hardwoods, touch them up yourself with a little water-based stain to make them less noticeable. And don’t forget about the charm of a nice throw rug when needed.

Bathroom Update

A mid-range bathroom update (think natural stone for countertops, not high-end quartz) offers a great return on investment, according to data from Zillow. And a bathroom that looks old can really date a house, Norris says. A few lucrative bathroom updates could include: new counter tops, new tiling, frameless glass doors (get rid of the brass or metal), new cabinets, and new fixtures for the sinks and tub. When replacing cabinets, remember that minimalism is best — neutral colors, and no designs or raised panels.

Initial Cost of Investment: The cost of a mid-range bathroom remodel averages between $3,000-$12,000 according to Zillow.

If That’s Too Expensive, Consider: Dated tile always looks better with clean grout lines, so consider cleaning or freshening the grout, which you can DIY or hire someone to do. Also, instead of replacing cabinets, you can simply paint them — white, gray, or black can offer a clean look, according to Norris. And reglazing the tub will always be cheaper than installing a brand new one.

Update Lighting Fixtures

Replacing lighting throughout a house can be a simple update for a small investment — but it can make a bit impact where appearance is concerned, Norris says. As you look at options for chandeliers, pendant lighting, and ceiling fixtures, remember to keep colors consistent with your home’s hardware. For example, you can mix metals such as copper and oiled bronze, or brushed nickel with chrome, but you wouldn’t want to mix gold and silver tones. Keep in mind that older brass fixtures can look dated, since they were often used in properties built in the 80’s and 90’s. In other words, if you’re going to the trouble to put in something new, make sure it offers a true update.

Initial Cost of Investment: Light fixtures for dining areas or pendant lights can be a few hundred to thousands of dollars, depending on source and style, Norris says. But there are often good deals to be found at places like Ikea, Home Depot, Lowes, and other stores that cater to the DIY crowd, where some fixtures can cost under $100.

If That’s Too Expensive, Consider: Less is more. With lighting, sometimes it’s more about what you don’t see than what you do… So if that giant 1980’s chandelier is eclipsing the living room, don’t feel like you have to replace it with something fancy — just take it out. The buyer can easily imagine for themselves what they’d like in the space, and you don’t have to spend a dime. You can also install fixtures yourself, but where wires are concerned, make sure you have a professional electrician to help.

So, How Much Can I Really Make?

There’s no one-size-fits-all answer here — every home is different, and every neighborhood and part of the country will yield varied results. But a common formula used by home stagers is that every $1 put into a house should yield an additional $1.50 increase at closing, at least. With some projects, the rate can be much higher — bathroom remodels boost sales prices by $1.71 for every $1 spent, according to Zillow. This means that a $5,000 bathroom renovation would yield a bump in home price of $8,550, perhaps more.

5 Things People Say About Bidding Wars That Just Aren’t True

If you’re searching for a home, you’ve no doubt heard your fair share of bidding war horror stories from friends and relatives going through the process. While bidding wars are an unfortunate reality in many areas, not everything you hear about them is true. I talked to Seattle real estate agent Katie Melton to separate fact from fiction.

Myth #1: It’s not worth trying to buy in a hot market — I’ll get outbid no matter what.

“This is entirely untrue,” Melton says. “I’ve been able to get more than 80 buyers into houses in a market that’s historically and annually competitive, and every single house we write an offer on has a bidding war.”

Melton believes the key is to find an agent with deep experience in the local market. “I always sit and have a consult with prospective buyers where I talk with them about what they can afford and what they’re comfortable with, and then we adjust their price down to give them a buffer so that they can be competitive and win.”

Myth #2: The home will always go to the highest bidder.

Even though price is always a top factor, there are many strategies that can help you create an attractive offer, so it’s important to find an agent who can help you navigate the tools available. Melton suggests looking at contingencies.

Let’s say you found your dream house, but you couldn’t go much higher on its price. “What if we supplemented that low escalation with fewer contingencies, like waived inspection or financing, or having early-release earnest money?” These strategies have helped Melton’s clients get into new homes even when they weren’t the highest bidders because they help ensure a quick and smooth closing process.

Myth #3: I can’t compete with all-cash buyers.

“I’ve beat all-cash offers a couple of times,” Melton says. Cash is king because it virtually guarantees a quick closing, but Melton notes that sometimes cash offers can’t escalate as competitively as someone who has financing.

“We want to make sure that our buyers are always partially underwritten or had desktop underwriting,” she says. “That allows me to confidently tell the listing agent that even without cash, the likelihood of this loan having any surprises is as close to zero as you can get.”

Myth #4: Bidding wars die down during the winter.

“This is historically true, but currently, a bit of false hope,” Melton explains. Bidding wars in the winter are commonplace now. The reason it gets confusing is that there have been so few listings in the last three years, and then in the winter, even fewer listings. At the same time, Melton notes that interest rates are low enough that many excited buyers compete for them.

Myth #5: I’ll get stuck in a bidding war if I go for a townhouse or condo, too.

“Townhomes and condos are less susceptible to bidding wars, and they’re wonderful options if they suit your price range and lifestyle,” Melton says. In Seattle, for instance, a buyer around the $600,000 range could get a nice townhouse over 1,000 square feet without so much competition from other buyers. There may be more room to negotiate and more time to create your offer. **Every market is different. In the Columbus market townhouses and condo’s are just as competitive!**

How to Mix and Match Styles if You Can’t Pick Just One

Your home should be filled with things you love, regardless of whether or not they all fall into the same interior design style category. In fact, some of the most interesting home decor styles are an amalgamation of more than just one.

“People get really worked up about mixing styles, but almost every great room has been layered with a variety of styles in one way or another,” says designer Emily Wolowitz.

That said, if you want to combine colors, accents, and pieces with a bit of intention and don’t know where to begin, keep the following guidelines in mind. Just know that, much like learning how to mix prints in your wardrobe, blending interior design styles is an art, not a science.

Start with a single style, then expand.

Palley & Southard owner and designer Lane Blank (with whom I work on an antique and estate jewelry business) suggests starting with one style and then throwing in a little bit of another, rather than deciding from the get-go that you’re going to do half of one style and half of another. (“Half and half winds up being a hodgepodge,” she cautions.)

Then, after you settle on your jumping-off point, Wolowitz encourages “that one doesn’t stick too closely to one design style unless the entire house or apartment is very specific to a certain design style (think Palm Springs Modern).” This is how you create a style that is more uniquely you.

Remember that the bones of your space might count as a style, too.

You might live in a super-modern high-rise with walls made completely of windows and an all-white lacquer open kitchen design. That’s a very specific look. “Some spaces dictate what style is going to be comfortable to live with,” explains Blank. So in the high-rise example, filling your home with top-to-bottom antiques could feel a bit off.

However, that doesn’t mean you can’t decorate a particular architectural style with a different interior design style. “I think contrasting the architecture of a space with the interior decor can oftentimes be successful,” says Alexia Sheinman, director at Pembrooke & Ives. “For example, a [space with] more historic, ornate architecture with contemporary furniture.” Sheinman adds that “it works better as a one-way stream,” meaning that modernizing something historical is a much more cohesive option than trying to make something new seem old.

Keep in mind that some traits beat out others.

“Warm always trumps cool,” says Blank. “You can’t have a cool room with warm accents. If you mix, it will just wind up being warm.” The same goes with print, she says: “If you put any print in a room, it’s no longer going to be a neutral room.” And yes, that’s even the case when adding a few throw pillows.

That’s not to say that you can’t mix any of the above, just that the overall vibe of the space will wind up being the stronger of the two. In other words, if you prefer a cool space, it’s best to avoid any warm accents, and if you love a truly neutral room, trust that any prints you incorporate will pull the eye.

Find commonalities among different styles.

“One of the best ways to mix in a different style [of] furniture or decor element is to find a unifying theme in the piece,” says Wolowitz.

One option for doing this, according to Marie Cloud, owner of Indigo Pruitt Design: “Start with a simple color scheme first, and filter everything through it.”

And if you can’t spot a shared theme, you can DIY it! As an example: “If the room is very clean and minimalist, but you are looking to incorporate vintage French chairs, I’d consider recovering them in a more contemporary cream bouclé or black-and-white graphic print,” suggests Wolowitz.

6 Shocking Things Your Home Inspector Won’t Check

Home inspectors are quite thorough. Before you buy a house, they’ll scrutinize things you never thought to look at in your many walk-throughs, from cracks in stucco to how well the toilet flushes. In fact, their checklists include over 1,600 features, all with the goal of helping you decide whether the home is in good enough shape for you to close this deal—or whether you should back out while you can. Given that a basic home inspection costs $300 to $500 but could save you thousands in repairs, that’s a sweet deal!

And yet, home inspectors don’t check everything.

For one, conditions such as mold, radon, or asbestos that require laboratory samples or equipment are the stuff of specialty inspections, which cost extra or must be conducted by other specialists.

Here’s what home inspectors conducting a basic search aren’t eyeballing, and what you can do if you want to make sure your prospective new home checks out on all counts.

Electrical outlets behind heavy furniture

For one, basic home inspections evaluate only the stuff these professionals can see or access easily. That means if furniture is blocking certain areas, your home inspector isn’t about to throw out his back to lug it aside.

“I’ve had china cabinets in front of an electrical panel, and there’s no way we’re going to move that stuff,” says Frank Lesh, executive director of the American Society of Home Inspectors, headquartered in Des Plaines, IL. Instead, ask the home seller to move such items in advance so the inspector can do his work without heavy lifting.

Roof

Home inspectors will gamely climb onto your roof and check for missing or warped shingles and make sure flashing and gutters are in good shape. There’s one huge caveat: Your roof should be less than three stories tall and not too steep. If it is, they’ll probably pass. After all, if they fall, it’s a long way down!

“We’ll go up on roofs if it’s safe,” says Lesh. “But if it’s raining or it’s too high, we’re not able to get to it.”

It’s reasonable to worry about the roof, which is a big-ticket item. You can hire a specialized roof inspector for $500 to $750 to examine roofs that a regular inspector will avoid. Some, hoping to get business if they turn up issues, will even inspect it for free; others charge according to location, roof height, and material. If they can’t climb onto roofs, they can perform an infrared inspection that assesses temperature differences along your roof to determine where heat is escaping.

Fireplace and chimney

Home inspectors will typically open and shut dampers to make sure they’re working, and shine a flashlight up the chimney to check for big obstructions like a bird nest. But that’s typically where their inspection ends.

Want more? A fireplace inspector can perform a Level 1 inspection to look for soot and creosote buildup, which could start a chimney fire. This extra inspection will cost about $80 to $200. If the home has experienced an earthquake or major storm, a chimney inspector will perform a Level 2 inspection, which adds visits to the roof, attic, and crawl space to check for damage ($100 to $500).

Ground beneath your home

While home inspectors will thoroughly check the home, the ground beneath it might go largely ignored. So if you’re worried about the land’s structural integrity—or whether it shifts, tilts, or has sinkholes or a high water table—you’ll need to hire a geotechnical or structural engineer.

These professionals test the soil for an array of problems, but it’ll cost you: Basic testing costs $300 to $1,000, and drilling a bore hole for deeper investigations can cost $3,000 to $5,000. That’s a lot to pay for a hunch, so if money is tight, go to PlotScan, a free site that will tell you the history of sinkholes and other natural catastrophes in the vicinity of your home—and help you assess whether more research should be done.

Swimming pool

Basic home inspectors will turn on pool pumps and heaters to make sure they’re working. But inspectors won’t routinely evaluate cracks or dents in the pool. For that, you’ll need a professional pool inspector, who will run pressure tests for plumbing leaks. He’ll also scrutinize pumps, filters, decking surfaces, and safety covers. The cost will hover around $250 or could be free, if you end up hiring the pool company for regular maintenance.

Well and septic system

If your inspector works in areas where wells and septic systems are common, for an extra fee ($150) he might test your well water and check that your septic system is running correctly. But if most houses he inspects are on public well and water, you’ll have to hire a well inspector.

Well inspectors—typically employed by companies that install or repair such systems—will collect water samples for lab analysis for coliform, arsenic, and other harmful bacteria and chemicals. They will ensure that well parts such as seals, vents, and screens have been properly maintained and that the well and pump can produce enough water. This will cost around $250.

Does the home have a full-on septic system? Then for $100 to $200, a septic system inspector will check your tanks, baffles, and piping; evaluate the inside of septic tanks using a camera to check on concrete conditions; and make sure wastewater is going into the tank, not leaking to the surface.

Home Repairs That You Should Never Procrastinate

It’s easy to put off home repairs, especially if they seem like big, daunting tasks. You are only making the problem worse and costing yourself more money by procrastinating. So, what home repairs should you never procrastinate?

Repair a Leaking Roof

The roof keeps everything safe from rain and snow in most homes, so if it falls apart, every room becomes vulnerable to water damage or more. For one, a leaking roof can cause water damage to your home, which can be expensive to repair. When you have a leaking roof, it can lead to the growth of mold and mildew, which can cause respiratory issues. Thus, to avoid extra cost, it’s essential to call an expert to help you with your roof repair.

Repair Cracks in Your Walls

Your walls may not look like much, but they’re the foundation of your home. And if you don’t take care of them, it can lead to severe structural issues later on. The cracks in the wall can lead to more severe problems with mold or other pests that could come into your home and make a mess of things. Plus, if you don’t fix the issue now, you will only have more significant issues later. Cracks in walls usually appear due to moisture, so you want to fix them before they get bigger.

Fix Leaky Faucets and Toilets

Leaky faucets and toilets can waste a lot of water and lead to expensive repairs if they are not fixed quickly. Fixing these issues as soon as you notice it will help avoid further damage or wasted water. Besides, leaky faucets and toilets can lead to other issues, such as rusting or corrosion. If left neglected, it can also lead to mold and mildew issues, leading to further potential health risks such as asthma. Replacing faucets and internal parts of toilets because of corrosion is very expensive, so fixing the issue will save you a lot of money.

Replace Old Appliances

If you’ve been putting off replacing your old appliances, now is the time to do it. Old devices are more expensive to run, and they’re not as energy efficient as newer models. The issue with older appliances is that they cannot save on energy. Today, the most recent devices save hundreds of dollars on utility bills every year because they use less power than their predecessors!

In conclusion, if you’ve been procrastinating on a home repair, now is the time to stop. The sooner you fix the issue, the more money you’ll save on repairs. You also need to ensure you contact an expert to avoid the issue from repeating itself in the future.

How Rising Fed Interest Rates Affect Home Buyers & Homeowners

Interest rates on mortgages and home equity lines of credit may rise following the Federal Reserve’s rate increase.

What the Federal Reserve did and why

The Federal Reserve raised a bedrock interest rate on Wednesday. As a result, mortgage interest rates probably will go up, and rates on home equity lines of credit certainly will.

The Fed raised its target for the federal funds rate by 0.25%, or one-quarter of a percentage point. Other interest rates are built atop the federal funds rate, most notably the prime rate often charged on corporate loans by large banks. It, too, will rise 0.25%.

Fed interest rates are moving higher as an inflation-fighting measure.

“It is our job to get inflation down to 2%,” Fed Chair Jerome Powell said at a news conference after policymakers met in January.

With inflation running significantly higher than the central bank’s target, the Fed is expected to raise the federal funds rate multiple times this year. The rate started the year near 0%, and traders in federal funds futures are betting that it will end the year above 1.5%, according to the futures market’s CME FedWatch Tool.

How the Fed rate increase affects home buyers

Mortgage rates are likely to rise because they tend to move in the same direction as the federal funds rate. With the anticipated increases, mortgage rates could trend upward all year.

If you have already signed a contract to buy a home and have locked an interest rate, you’re in good shape. The lender can’t raise your rate.

But if you’re shopping for a home or plan to this year, mortgage interest rates might be higher by the time you get a purchase offer accepted. You can’t lock an interest rate until you have a contract to buy a home.

If mortgage rates substantially rise before you find a house, you may end up shopping in a lower price range. That’s because higher interest rates weaken your buying power.

How much you can borrow for $1,500 a month (principal and interest)

Interest rate	Loan amount
4%	$314,200
4.5%	$296,000
Difference	$18,200

Don’t rush to buy just because mortgage rates are rising, warned Robert Heck, vice president of mortgage for online mortgage broker Morty. Rates, he said by email, shouldn’t be “the exclusive driving force around whether someone should buy a home right now.” Of course, rates play into the decision, but personal and financial factors are paramount.

How the Fed rate increase affects mortgage refinancers

With interest rates going up, fewer homeowners will have the opportunity to refinance into a lower interest rate to decrease their monthly payments.

But not everyone refinances to shrink their monthly payments. Many people choose cash-out refinances: They refinance for more than they owe and take the difference in cash. That cash can be spent on renovations, debt consolidation, tuition or other things.

Rising interest rates could decrease the loan amounts that cash-out refinancers can afford to get because higher interest rates bring higher monthly payments.

A home equity line of credit is an alternative to cash-out refinances, but HELOC rates will rise this year. The same is likely to happen to fixed-rate home equity loans.

How the Fed rate increase affects homeowners with HELOCs

The interest rate on a home equity line of credit, or HELOC, goes up whenever the Federal Reserve raises the federal funds rate, and by the same amount. So, when the Fed increases the federal funds rate by a quarter of a percentage point, the rate on a HELOC will follow within a billing cycle or two.

HELOC rates are indexed to the prime rate, which is indexed to the federal funds rate. On a $50,000 HELOC balance, a 0.25% increase in the interest rate approximately means a $10.42 increase in monthly interest.

Interest rates on cash-out refinance, HELOC and home equity loans tend to be lower than rates on credit cards and personal loans, said Rob Cook, vice president for marketing, digital and analytics for Discover Home Loans, by email. According to him, “That means that leveraging your home’s equity will continue to be a compelling option even as rates rise.”

How the Fed rate increase affects home sellers

If you’re selling your home, you are probably taking offers more seriously when they’re from buyers who have been preapproved for a mortgage. But to have confidence in a buyer’s ability to afford your home, make sure the preapproval is based on current interest rates.

Why? Buyers preapproved at yesterday’s lower rates may no longer qualify for the same loan amount at today’s higher rates. So if you accept an offer from a buyer who ultimately fails to qualify for a mortgage, you’ll lose valuable time.

If interest rates rise substantially, you may end up selling to someone in a higher income bracket than you initially marketed your home to.

Mid-April the Best Time to List

Home sellers who list during the week of April 10–16 will be able to take advantage of the spring buying season’s anticipated strong demand, high asking prices, quick home sales, and lowered competition from other sellers, according to realtor.com®’s fourth annual Best Time to Sell Report. Those who list that week will likely get a head start on the competition.

Each year, realtor.com®’s research team analyzes recent market conditions to pinpoint the optimal week to list a home. The team found home prices and buyer demand are rising earlier in 2022 than in years past.

“Homeowners who are thinking about selling this spring still have time to get ready,” says Danielle Hale, realtor.com®’s chief economist. “Preparation is especially important this year since market dynamic could shift quickly along with factors like rising mortgage rates, inflation, and the ongoing conflict in Ukraine.”

Mortgage rates have been rising more quickly than expected. That could prompt potential home buyers to move into the housing market more quickly this spring to lock in lower monthly payments.

Realtor.com®’s analysis shows that accelerating home prices also may prompt buyers to take advantage of the spring market earlier than in the past. As such, sellers who list from April 10–16 could secure asking prices that are nearly 11% higher—or $39,000 more—when compared to the start of this year, according to realtor.com®’s research.

What in the World Is an Escrow Shortage?

If you’re like a majority of homeowners today, you have a mortgage with an escrow account. And like most of those homeowners, you understand the basics of escrow, but when it comes to shortages and overages, it can be difficult to keep it all straight.

As a quick refresher, an escrow account is an account that holds the funds you need to pay your property taxes and homeowners insurance. It’s not an account that you manage directly. It’s simply a holding account that contains the funds you pay every month to ensure your taxes and insurance bills are paid.

By consolidating these payments into your monthly mortgage payment, you only have to worry about one bill rather than several bills all due at different times. We help you by making sure you have enough money in your account to cover your bills; then when they’re due, we pay them on your behalf. It’s a service that is designed to make your life easier.

So where does that money come from?

It comes directly from your monthly mortgage payment. When you’re looking at your payment amount, it’s helpful to view the payment as two categories – one for principal and interest (the amount that goes toward paying off your home loan) and the other for property tax/homeowners insurance/mortgage insurance. How much of the money you pay that goes to your escrow account is determined by your yearly escrow analysis. The difficulty comes when trying to accurately estimate or predict the amount of taxes that will be required of you in the coming year or changes in insurance premiums.

Sometimes it’s overestimated, but often it’s underestimated. That’s where the escrow shortage appears.

For example, if you buy a home that was built for you, your initial tax assessment will more than likely only consider the land value of the home. But once the property is assessed again, it will include the land value PLUS the value of your home. As a result, your property taxes will increase and so will your escrow payment. Which means, ultimately, your monthly mortgage payment will increase.

In other words, an escrow shortage is the result of not having enough money in your escrow account to cover the actual amount needed to pay your bills. It sounds as simple as it is.

Here’s another example:

If your annual tax payment is projected to be $2,400, $200 goes to your escrow account every month. ($2,400 divided by 12 months in a year). If your projected insurance amount is $1,200, $100 goes to escrow every month.

So if you have a $1,200 monthly mortgage payment, $900 goes toward your principal and interest, while the remaining $300 goes toward your escrow account every month.

However, at the time of your escrow analysis, let’s say that your taxes have been assessed and they have increased from the amount we thought they would be during last year’s analysis. The actual amount comes in at $3,000 for taxes and $1,600 for homeowners insurance – that’s a difference of $1,000.

TAXES: $2,400 – escrow analysis prediction

$3,000 – Actual

-$600 Difference

INSURANCE: $1,200 – escrow analysis prediction

$1,600 – actual

– $400 difference

Total shortage: -$1,000 for the tax/insurance bill.

At this point, you’re responsible for the $1,000 required to make up the total amount due for your taxes and insurance. Additionally, you’ll notice an increase in your monthly mortgage payment. The reason for this increase is to cover the newly assessed taxes and homeowners insurance.

Here are some more things to consider

Is there a difference between an escrow shortage and an escrow deficiency? While these words may seem similar, in the world of escrow, they’re different entities. An escrow shortage occurs when there is a positive balance in the account, but there isn’t enough to pay the estimated tax and insurance for the future.

An escrow deficiency is when there’s a negative balance in your escrow account. This happens when we’ve had to advance funds to cover disbursements on your behalf. So not only are you going to be short for your upcoming tax and insurance payment, but you also owe money to bring your account current.

How often does the escrow account get analyzed? We look for changes in tax and insurance in the form of an escrow analysis once a year. However, if we see an issue that requires further examination, we can do an analysis to determine its impact on your payment.

How can you be proactive in managing your escrow account? Pay attention to any information you get from your city regarding tax information or from your homeowners insurance company. They will often send you information in the mail about trends and increases. This can help you plan ahead. Keep an eye on insurance trends yourself and shop around to make sure you’re getting the best rate you can. Or, set aside a savings account you deposit a set amount into as an escrow back up plan. This way if your escrow account does wind up short, you’ll have the extra funds to pay it immediately rather than roll that into your monthly payment.

Rates have nothing to do with your escrow payment. “But I have a fixed-rate mortgage! My payment is not supposed to increase.” Which is true, and it doesn’t. Remember how I suggested to view your monthly payment as two parts – a principal/interest part and the escrow part? If your rate is fixed, the amount you pay toward your principal and interest doesn’t change. The amount that does affect your monthly payment is the taxes and insurance part.

For example, using the same numbers from our example above:

10-year mortgage: $1,200 monthly mortgage payment of which $900 goes toward principal and interest, and $300 goes to escrow.

The next year, your city’s taxes increase. The new estimate states we now need $500 per month instead of $300 to cover your tax and insurance bills. This increases your monthly mortgage payment to $1,400. $900 of that amount still goes to your premium and interest. It has not changed.

But if I’m only short X amount, why am I required to pay Y? Here’s a real-world scenario: I received my escrow analysis statement and it said I’m short $1,600. The only thing that changed is that my homeowners insurance went up by $800. Why am I paying double?

Here’s what’s happening: The escrow account was short $800 to cover the payment for my insurance. So I’ve got a deficit of $800. The other $800 makes up the difference for the future payment of my homeowners insurance. This will get me caught up and hopefully not in a shortage situation next year. Effectively, I’m paying $800 for last year and then $800 for this year.

Appraisal Gap: When a Home’s Value Is Lower Than Your Offer

An appraisal gap is when an appraiser says a house is worth less than the offer. Pay the difference or renegotiate.

Sometimes your mortgage lender’s appraiser says the house is worth less than you agreed to pay. This is known as an appraisal gap or a low appraisal. You may have to pay the difference in cash or renegotiate with the seller to keep the deal alive.

What happens when the appraisal is lower than the offer?

When facing an appraisal gap, you have the following options:

Pay the difference in cash between the appraised value and the amount of your offer.
Walk away, if you have an appraisal contingency in your purchase contract.
Renegotiate with the seller.
Request a review of the appraisal if you find inaccuracies.
Apply with another lender in hopes that it will hire an appraiser who values the property in your favor.

This article is mostly about that first option — paying the difference. The next option — walking away — is the least risky. Like a little black dress, it will forever remain in style.

The last three options for dealing with an appraisal gap can save money and preserve the deal, but might be impractical when home buyers outnumber sellers. This imbalance, called a seller’s market, leaves home buyers with a weak negotiating posture. In some instances, the seller won’t budge when asked to reduce the price to the appraised value. An impatient seller might reject a request to seek an appraisal review or to start over with a loan from another lender, because those approaches invite delays.

How to deal with an appraisal gap

Pay the difference in cash

Let’s say the seller won’t reduce the price. The seller sees it this way: You signed a contract to pay a certain amount, and other would-be buyers may be waiting to take your place if you can’t or won’t go through with the purchase.

If you’re determined to buy the property, it’s going to take a bigger down payment than perhaps you had expected. How much more? Enough to cover the difference between the appraised value and the price.

Before laying out an example, let’s take a one-paragraph detour to explain why this happens and how the appraiser fits in.

Mortgage lenders won’t let you borrow more than the home is worth. To confirm whether the property is worth what you offered, the lender hires an independent, third party to assess the property’s value. The appraiser is that third party. To home buyers’ chagrin, appraisers sometimes conclude that properties are worth less than the offer.

Cash buyers don’t have lenders peering over their shoulders, so they don’t need appraisals, says Chuck Vander Stelt, a real estate agent in Valparaiso, Indiana, and founder of quadwalls.com. The ability to buy without an appraisal gives cash buyers an advantage in a competitive market.

But most buyers need mortgages. The appraisal is important because the loan amount is based on the appraised value. If the property appraises for $100,000, and the loan requires a 5% down payment, then the maximum loan size will be 95% of the appraised value, or $95,000.

But what if you had made an offer for $110,000? The lender will advance you $95,000 based on the $100,000 appraisal. That’s $15,000 less than the price, and you’ll have to bring every penny of that amount to closing. This situation can be stressful if you expected to make a down payment of around $5,000, only to find out that you’ll have to scrounge up another $10,000 because of the low appraisal.

Renegotiate with the seller

When the purchase contract has an appraisal contingency and the appraisal is low, you can try negotiating with the seller to reduce the price. You can ask the seller to cut the price to the appraised value or to split the difference.

Renegotiating with the seller is less likely to succeed when there were several competing offers. In such a case, the seller can tell you to take a hike and accept the next-best offer. Asking to renegotiate can be a risky request in a seller’s market rife with competing offers.

Other ways to overcome an appraisal gap

You can request a review of the appraisal if you find inaccuracies in the appraiser’s report. Your agent can help with the research and paperwork. Or you could apply for a mortgage with another lender and hope for a more favorable appraisal. The problem with these approaches is that they take time. An impatient seller might throw out your offer and accept another.

Lastly, if you have an appraisal contingency you can walk away and make an offer on another property. With luck, the appraiser won’t think you’re paying too much.

Limit your exposure with appraisal gap coverage

A typical home purchase contract has an appraisal contingency: wording that says the buyer can call off the deal if the property appraises for lower than the buyer offered. But in hot real estate markets, where buyers outnumber sellers, some buyers waive the appraisal contingency. These buyers either pay cash for the home or gamble that they have money to pay the difference between the appraised value and the price, however much that may be.

There’s an interim step you can take between having an appraisal contingency and waiving it: appraisal gap coverage. It sounds like some sort of insurance policy, but it’s not. It’s custom wording in the purchase contract that says you will pay the difference between the appraised value and the contract price, up to a certain amount.

Take the example above, with a $10,000 difference between the purchase price and the appraised value:

If you had offered to cover an appraisal gap up to $10,000, you would proceed with the purchase.
But if you had offered to cover an appraisal gap up to $7,500, you would be entitled to withdraw your offer and get your deposit back. That’s because the difference between the offered price and the appraised value is greater than the $7,500 appraisal gap coverage.

Your offer needs to be believable, especially if there’s a bidding war on the property. You’re more likely to succeed if you include financial documentation with the offer.

“Not only should you be turning in your pre-approval letter, you should also be turning in a proof of funds demonstrating you’ve got those funds to cover that appraisal gap,” Vander Stelt says. This will make your offer look more credible than competing offers without documentation.

9 Things You Won’t Realize You Have Strong Opinions About Until You Start House Hunting

I remember the glory days before I bought my house, when the bathroom situation at my apartment didn’t bother me. There was one no-frills bathroom, and it was just fine. I lived alone, so it wasn’t an issue.

But then I started looking for houses. I quickly learned the bathroom situation is a Very Big Deal to me. I was moving in with someone else, so not only did we need two bathrooms (what if we were both sick at the same time?!), but they both needed an integrated fan (because nobody wants to hear anyone’s business)

How your opinions change when you buy your first house — and when you buy future homes — can have a huge influence on what you eventually end up purchasing. I took an informal poll of The Apartment Therapist, a Facebook group run by Apartment Therapy, and asked: What home features did you not expect to have super strong feelings about? Here’s what the group reported.

Garages

Particularly if you live in a climate with weather extremes, not having a garage can be a dealbreaker for buyers. An attached one is best, but separate will do. Some would even prefer a carport if nothing else.

Stoves

There are two camps in the cooking world: pro-electric stove, and pro-gas stove. Until you try the one you hate, you won’t know for sure which one you are. Thankfully, apartment living before buying can supply you with a range of stove options to help form your decision.

Basements

I personally won’t live in a home without a basement. I grew up in a tornado-heavy area, and if I don’t have somewhere to hide when the sirens start going off, that’s a dealbreaker for me. Others, of course, prefer it for storage, while another group doesn’t want one — it’s too much cleanup and flood risk.

Well Water

Whether the house has well water or city water — and which you prefer — can largely depend on how you grew up. Some who had well water as a child will never go back to it, while others like the flexibility it gives you in maintaining your own water supply.

The View

For some people, this means an expansive view over the surrounding area. For others, it’s as simple as not staring right into a neighbor’s window or a brick wall. A view can make or break the quality of the home, not just for aesthetic appeal, but also because what’s in the way of the windows changes how much natural light comes in.

Porches

Once you have a taste of that porch sittin’ life, it’s hard to go back. Unless, of course, you’re in the camp that doesn’t want to deal with porch maintenance and seasonal cleanup.

Having a Yard

For people with kids or dogs, a yard is an important play space. For people with neither, a yard is built-in upkeep. The general consensus from the Apartment Therapist group is that this preference changes based on your life stage and family progression.

Bathtubs

Have you ever tried to wash a dog or toddler in a home with just a shower? It’s not worth the frustration.

Flooring

It’s the never-ending debate: hardwood versus carpet. (Or even tile!) Which you choose depends on your personality, personal style, desire to clean, and ambient temperature of your feet on the floor in the morning.