Who is setting the market? Buyers or Appraisers? Baton Rouge Louisiana Real Estate Blog

There has always been a saying in Real Estate "Buyers set the market".  After all a home is only worth what someone will pay for it, right? 

In a recent article put out by Bloomberg "Home-price Recovery May be Undermined by Appraisal (Update 1)" buyers are not the ones setting the market.

Especially when they purchase using Fannie Mae or Freddie Mac loan packages.  According to Bloomberg there have been multiple deals that have crashed and burned due to appraisals coming in lower than the agreed upon sales price.  With the new laws set into place as of May 1, 2009 there are even tougher standers to be upheld.  A watch dog of sorts for the mortgage company and appraiser relationships. 

"So what did the appraisal come in at?" is a question that I have heard many times in the BATON ROUGE LOUISIANA REAL ESTATE market from a prospective buyer.  The fact of the matter is that most appraisers (unless there is a latent defect with the home) bring the appraisal in at or slightly above the contract price.  Why do appraisers need to know the contract price before they complete the appraisal? 

 I am guessing that if they want more business from that mortgage company they will bring it in at a value so that the deal won't fall apart.  But who are they serving ultimately?  The mortgage company that will be stuck with a property that can't be sold for what they bought it for, the owners who now can't sell because the home value was inflated?

I have also heard the saying "you have to sell this home 3 times" meaning that you need to catch the attention of the buyer, their mortgage company and appraiser before you can purchase the home.

Of course, if you have a bunch of money to put down you can alleviate this problem, the fact of the matter is most people don't. 

So tell me what you think! 

Are you telling your clients that buyers or appraisers are setting the market today?