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.
Nice article. I think that home prices will probably be on the rise in the couple years due to a few of the reasons you mentioned. I gotta get my house bought soon before that happens, haha.
Yes the lower prices are good for buyers.
In Victoria, we have appraisals of course, but we also have assessments for taxes, etc. In your part of the world how do they compare. Many homes in Victoria are selling for under assessment valuations.
The county has assessed values but they do not impact appraisals and in some cases appear unrelated to actual values.
I hate low real estate appraisals, especially when a loan falls through because of one.
My last deal we had this issue. Barely got worked out. It was a golf course home with an awesome view and nothing was comparable so they used homes without the view and just added an adjustment that I didn’t think was nearly sufficient. Also, there are some foreclosures that got accepted offers in days dragging things down.
Appraisers are choking the market and hurting home values. I’ve had nothing but problems with appraisers over the last 2 years. The process doesn’t make sense. They don’t offer a range, but a set price. That’s not how the market works. I had to educate an appraiser and got him to raise the appraisal $300k in 24hrs. My seller lost 40k on a deal. Another client got his home appraised for a HELOC at 5.2 million in April. A different appraiser just appraised it this week at 4.1 million. There is no rhyme or reason. Great article. Let’s start beating the drums on this and find a better way.