There was a time when a home buyer could make an offer on a property and the property would appraise for what ever the buyer offered. In 2005 I sold a home that had been appraised for $165K in the spring for $189 in the fall of the same year. The buyer offered $189 and that is what the same home that had appraised for 165K six months earlier was now worth. The sellers had gotten an appraisal so they could get a home equity loan and then decided to sell the home a few months later.
All home loans are subject to an appraisal. If I list a home for 200K and a buyer offers 200K the buyers lender may appraise the property at 180K which in most cases means the buyer can not buy the home unless the seller lowers the price. It gets complicated and there was a time when the buyer could just come up with some extra money to make it work but with today’s stricter underwriting standards a low appraisal means no loan period.
Before the appraisal system changed a couple of years ago banks were able to choose their appraiser. That wasn’t a good thing and we know that the very lose standards contributed to the housing bubble and subsequent crash. The new rules have gone too far. We have inexperienced lower paid appraisers who do not know the neighborhoods. There isn’t any penalty for the appraiser for under valuing real estate but there is a penalty for over valuing it.
Normally in the free market the forces of supply and demand impact prices. Right now the supply of homes on the market is low and the demand is high yet home prices are fairly flat. Are appraisers holding prices down? Are home prices artificially low? There doesn’t appear to be anything in our current system that would prevent the undervaluation of real estate.