The aftermath of the real estate bubble has many homeowners retaining existing property. For those who haven't been able to sell, are upside-down in their homes (owe more on the mortgage than the current value) or are not able to get a mortgage on a new home, what do you do NOW? The best thing is protect your home's value. Here are a few proactive steps:
1. Watch out for new taxes. Many state and local governments are struggling financially, so they may raise property taxes to cover shortfalls, even though property values are declining. Pay close attention to new tax hikes. Be aware of how they impact you. Include state and local property taxes on the federal tax return. (Understanding how property taxes work will ensure that you won't be overcharged. Read How Property Taxes Are Calculated.)
2. Contest property values. Most state and local governments have a process in place to contest property appraisals, which determine property values as well as taxes. Sometimes there is a catch 22 between insisting on high property values vs. paying higher taxes.
Lower property values, dragged down by the high rate of foreclosures and the inability of borrowers to obtain loans, result in overall lower values for the whole neighborhood. Determine if it's in your best interest to pay lower taxes or to maintain a higher estimated property value. (To learn how to spot hot properties that you can turn around for a profit, be sure to check out Foreclosure Opens Windows For Investors.)
3. Have your home appraised. Homeowners experience a second slap in the face when the home they may have purchased at an inflated price, due to an overzealous appraisal, now receives a much lower appraisal when attempting to sell or refinance. In May, Freddie Mac and Fannie Mae began enforcing the new Home Value Code of Conduct (HVCC) for home appraisals. Under the new regulations, independent appraisers are hired by appraisal management companies. Lenders, mortgage brokers and real estate agents, who previously contacted and provided comparative home values to appraisers, do not participate in the new appraisal process.
The result is appraisers who may not know the neighborhood or may be low bidders only concerned with appraisal volumes, not quality. Homeowners across the country are being shocked by the difference between previous and recent appraisal values. Lenders consider lower appraisals more risky, so interest rates increase. Entire neighborhoods are impacted. What's a homeowner to do? Get a second opinion.
4. Continue to make marketable improvements. Use an appraisal report to guide the changes needed to increase the value of your home. Stick to upgrades in essential areas like kitchens and bathrooms. (Find out how you can remodel your home and pass some of the expense onto future owners; check out Add Value To Real Estate Investments.)
5. Participate in community activism. Pay close attention to new zoning laws, proposed new developments and the reputation of your neighborhood's school district. Rally your neighbors to make sure the area does not deteriorate. Actively lobby state and local organizations on behalf of your neighborhood.
6. Help your neighbors. If an abandoned foreclosure is deterring other properties in the neighborhood from selling at decent prices, take action. Sure, property owners are responsible for maintenance, but the other alternative is to watch home values continue to decline. Research the property owner at your local county courthouse. Bank-owned properties have contractors paid to maintain vacant homes until they are disposed of. Contact the mortgager and insist that it take care of the home.
Finally, be ready to move when your local market rebounds. Calculate the amount of loss you are willing to accept. But don't move too soon. Remember, if the value of homes in your local area were artificially inflated in the past, it may not be realistic to expect to regain the entire value of your home in just a few years.
It takes a lot more work, but selling your home without a realtor can have benefits. Learn how in our Cut Commissions With "For Sale By Owner" Sales.