The Market Recovers, Appraisals Lag Behind

Today as I was discussing an appraisal issue with a couple of fellow practioners, I learned that appraisals are suddenly becoming more of an issue.  And, unlike a year ago, it's not really because appraisers that don't know the market place, but more because of the market changes.  A year ago, 6 months ago, we had a lot more distress sales in the market....and the "traditional" sellers had to compete with the distress sales in order to be able to sell.  But for the past 6 months things have been absolutely ROCKING and there has been upward pressure on sales prices... and we ARE seeing prices go UP.  (Sellers - this is where you cheer:  YAY!)

BUT, (and there's always a BUTT, isn't there?), appraisers are pulling comps of past sales... You know, from when we had so many distress sales, and when the market wasn't so hot.  As a result, appraisers are having a hard time justifying the new sales prices that the market is bringing.  THAT is a problem we haven't had for several years.  It's good news...."ish"... I guess.  Well, the cause is good.  The side effect - not so much.  (Buyers and sellers together:  Boooo!)  A low appraisal can kill an otherwise perfect real estate sale.

Honestly, I am frustrated.  I get it, but I am frustrated.  "Fair Market Value", is, by definition, what a willing buyer and seller agree to in an arms length transaction.  It is not what an appraiser thinks.  And yet, appraisals are holding back our market recovery.

So I am trying to be an optimist here, and focus on the positive - the market is strengthening.  And I will try to take the problems in stride.  Dear sellers, and buyers, I hope you do, too.  Real estate these days is not always a fun game to play.

In the mean time, take a look at theses posts:
To make you laugh:  Your Home, as seen during a real estate transaction.
To help you get your appraisal: Get the best appraisal for your home.
Interested in learning more about our market place?  Visit the Market Statistics part of my web site for the latest news, stats, and information.

You Might Not Need A REALTOR IF....Reason #8

You Might Not Need A REALTOR IF.... Reason #8

You Know How To Deal With Low Appraisals

Don't let you're money go down the drain!

Although I briefly mentioned this in prior posts, it is critically important and therefore I am focusing on it as it's OWN separate issue.  Appraisals. Ugh.

Appraisals are a key ingredient in most sales.  While there will be some cash sales out there, even some of those sellers will want an appraisal, especially in a market like this one.  No one wants to overpay for real estate today.  But, the vast majority of buyers will be getting a loan and financing their purchase of your property.  Their banks will REQUIRE an appraisal.

Some segments of the market are appreciating, while others are still on the decline, and still others have no activity at all.  This makes it very hard to get a good appraisal.  But, let me ask you this, Mr. Seller...."Honestly, would you know a good appraisal from a bad one?  How?"

If your answer is you'd know because the appraised price was lower than your sales contract, well, you could soon find yourself in a pickle.  No bank, no appraiser, can make a change based on that.

Maybe you think you'll rely on zillow, or tax assessments?  Nope.  Irrelevant.  Sorry.

You'll tell them that your neighbor sold his house last year for $25K more.  Nope again.

You will need to SHOW market knowledge to an "expert" in such a manner that it doesn't show bias.  Good luck with that if you are the seller.  I couldn't be unbiased if it were my property.  I wouldn't be completely unbiased if I were your listing agent, but I could handle the matter in a way that seemed unbiased.  I have resources to use to support the price, and market knowledge (as well as the collective knowledge of the agents around me). 

And, what if the appraiser refuses to make a change?  Can you get a new appraisal?  Probably not, especially if you're on your own.

What if you cancel the contract all together and go with another buyer?  Well, depending on the type of appraisal, it may be SIX MONTHS before you can get a new appraisal if the new buyer is using the same type of financing - EVEN if it is with another bank.  Did you know that?  Most people don't, but I promise it's true.

You see, there are "rules" and then "exceptions" to the rules.  A true expert in their field can help you navigate your way through tricky situations like low appraisals.  While ultimately, you may be forced to accept the low appraisal and even lower your sales price or provide another concession because of it; that should NOT be your only defense.

A strong listing agent will have many potential alternatives for dealing with appraisal issues.  Market knowledge and resources are the first line of defense and with a strong argument, and with the right presentation, this is often all you need.  Other times, it is a matter of getting to someone who will listen - and having those inside connections at the bank can help.  But, even the best agent can't know the VP of every bank in the nation.  So, then what? 

The RIGHT agent will be able to answer this question as it pertains to YOUR property and YOUR most likely buyer.

If you are in the mortgage industry or are an appraiser, you may (or may not, depending on your experience level) know how to deal with low appraisals so that the vast majority of the time the purchase can move forward as planned, with no further concession by the seller.  Otherwise, you might just need to hire a real estate agent to help you with the sale of your house.

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This is REASON #8 of the TOP TEN REASONS NOT TO HIRE A REAL ESTATE AGENT TO SELL YOUR HOME. (Click this link to see all posts in this series.)

Stay tuned to the REAL ESTATE WHISPERER for the rest of the posts in this series.

In the meantime, if you need honest feedback about whether you should hire a REALTOR to sell your home, and if you're in the Loudoun/Dulles area, feel free to call me. I am happy to talk with you over the phone about some of the pros/cons of hiring a real estate agent.

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Vicky Chrisner, REALTOR

Keller Williams Realty * Leesburg, VA

703-669-3142

VChrisner@KW.com

Appraisals, Assessments - What's the Difference?

There is a difference between "appraisals" and "assessments" although the words are commonly used interchangeably. A educated consumer knows the differences: Assessments

• Completed using an automated valuation program.
• Generally done once per year.
• Used to determine real estate taxes.
• Should be within a margin of error of +/- 10%.

Appraisals

• Done by licensed appraiser who looks at the home, and comps.
• Values property "real time" (as of the date of the report).
• Used to support sales prices or loan amounts.
• Should be as close to Fair Market Value as possible.

Fair Market Value is what a willing buyer will pay for a property of a willing seller in an arms length transaction. Fair Market Value is determined SOLELY by the buyer and seller, and will be reflective of the market conditions. If a seller is stuck on obtaining an unrealistic price for their property, it will not sell. If a buyer is stuck on purchasing below reasonable values for the market conditions, then he will not buy. When these two parties meet in the middle they will find Fair Market Value, and each will accomplish his goals.

Appraisals are often part of the sales process, but usually after a price has been agreed to between buyer and seller... appraisals attempt to support the price of the purchase so that financing can be obtained. Assessments are not part of the equation, except when the purchaser attempts to estimate his costs to own the home, and he is determining the taxes due for the property.