Low appraisal . . but why?

Wiresweb_wm St. Paul home prices are still a moving target.   I spend more time than ever analyzing data so that I can come up with a price that will work.   For appraisers and for Realtors the accepted method of determining value is to find three comparable properties that have sold in the last year and are located close to the subject property.  As an example if I had a three bedroom rambler and I put it in the Mac Groveland area it would have one value, if I took that same property and moved it into my own neighborhood it would have a different value. 

To complicate matters a great percentage of the homes that have sold this year have been foreclosures.  Most of us won't use foreclosures as comparable properties because of their condition and because once a home is owned by a bank it's value seems to drop like a rock.   It is always a challenge to find comparable properties especially in the city where the homes were not all built at the same time using a couple of standard floor plans and in the last few months it has gotten even harder.

There are some new rules regarding appraisals and the lender doesn't get to talk to the appraiser any more. It is a bit more complicated than that and on the surface it looks  good but we are now seeing some very low appraisals.  The appraisers would rather err on the side of a low appraisal because there is no risk for them or for the banks if the appraisal is low. Some appraisals go to appraisal companies and the person doing the appraisal may not understand the property or the neighborhood.  

People are getting loans and buying homes every day but we are also seeing more cases where the financing doesn't work out and it is often because of the appraisal.   It isn't easy to price real estate and no one has come up with a software program that can replicate the kind of fuzzy logic that we all use.  Average and median sale prices have been going up a little in St. Paul over the past few months but appraisers seem to be working under the assumption that they are going down.

Sellers need to be realistic with those prices. If your home is on the market and no one is looking at it, it is priced too high.  If buyers are looking at it but no offers are coming in it is priced too high. If it is priced too high and by some miracle a buyer does make an offer it will be a low offer. No matter what the offer is if the appraiser doesn't agree with the price there will be problems.  When a home does not appraise for the amount that a borrower wants to borrow the deal usually falls apart unless the buyer can kick in some cash or the offer is renegotiated.