Appraisal … a big factor and challenge today

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photo courtesy of Real Estate One

photo courtesy of Real Estate One

Home buyers and sellers need to be aware that, in spite of our diligent efforts in helping you properly price your home by way of a Comparative Market Analysis, we are faced with huge challenges with home appraisals these days.  Although our the lack of available homes for sale (inventory) on the market is causing the “law of supply and demand” to kick in, enticing sellers to ask a higher price for their homes, it is still very hard to accomplish that goal because appraisals are coming in lower than the Purchase Price offered.

This article from Fox Business News entitled:  Problems Persist, but Appraisals are Improving is very good at explaining the current situation.  However, on a local level – and in my experience – there are a couple of points that I would correct:

One, the percentage of problems is more along the 50% range than the national average of 34%.   We struggle greatly with the Appraisal Management Companies assigning out-of-town appraisers unfamiliar with the areas that are so vastly different in Livingston and Washtenaw counties.  In Washtenaw County one neighborhood’s value can vary greatly from another.  Same with Livingston County – especially around the lakes.

The new federal guidelines strictly forbid any influence of the appraisers by lenders or REALTORs, however, I do interview the appraiser to find out where they are based and I verify them as a member of the multiple listing system that is local to the property.  If they are not a member, they are unable to pull accurate and applicable comparable SOLD homes.  This is not a fool-proof prevention of an appraisal value difference, but it helps.

My second correction – or challenge, if you may – are the comments that “Appraisers look at the condition of a property,…”.  This has not been the case in the appraisals that have come in off the Purchase Price.  We are not seeing any adjustments for condition, amenities, or features a home has.  If you have granite counters and updated fixtures, that is great – and it will likely get you sold much faster – but there will not be an adjustment for those items against the home next door that does not.

The trend I am seeing is that the buyer that can come up with the cash to cover the difference between the Appraised Value and the Purchase Price, is the one who wins.  These types of sales are unfortunate for the buyer, initially, in that they will be in a negative equity situation, but, that will ultimately work itself out.  Those properties will become the SOLD comparables which will be used for the next appraisals, thereby causing the appraised values catch up with the sale prices.  Once those two values equal out – which I suspect will take about 6 months – then the equity situation for the buyers who took the initial cash-hit will also come in line.


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