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Can Someone Seriously Explain to Me How Prices Were Allowed to Skyrocket?

By Carole Cohen

Real Estate Agent with Howard Hanna Cleveland City Office

August 12, 2007 11:40 AM

Reading Lenn Harley's amazingly 'on point' post today got me thinking about something that keeps churning in my brain. If prices on homes should be $300,000, how in blazes did they get to $500k and $600k in the time it takes to eat a cookie? I'm really serious about this.

What do they tell you about appraisals for homes? Here they say, you better expect your home to be within one precent (two MAYBE) of the comparable sales in the neighborhood.

How did these homes pass appraisals or am I missing something? I believe in a free market economy; I surely want my sellers to get the best price they can for their home; but how were homes able to skyrocket the way they did?

Did appraisers turn the other cheek? Or am I missing some new fundamental principle of economics here?

I can tell you that I have never had a home sell that was 25 percent over the price of the last home sold in a neighborhood. Seriously!

I would love to hear all your comments, this is one of those thoughts I remember at 2am (normally) and then say okay, I will have to ask on a post. I finally remembered! Peace Out

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Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Bob, I like your analogy. It's been an eye opener to read everyone's comments, especially those of you who were in a really spiked growth market for a while. Here, 'what someone is willing to pay' is generally only higher than a reasonable listing price if it's a multiple offer situation; and again then not a super high amount of money over that!

Michael and in your analogy the mortgage lender is asking the 'what do you want to walk out of here' amount. Although I admit, I do it too, in conjunction with the mortgage peeps.

Debbie, I think I am glad our market was relatively stable. It was short on supply yes but still not bubbling over (pun intented). lol

Ardell I really liked your condo complex breakdown on RCG and I suggest everyone head over there to read it. The closest I came to anything resembling a sale higher than anyone could predict was a home on an unassuming street, lived in by an architect and his family, they took off the roof, added a glam bath and sky lights and master br and really dolled up the kitchen etc. There were still comps, just not on that street and that house sold for approx 29k more than any other home had on the street.

Thanks for the education and good conversation everyone!

Aug 13, 2007 10:57 AM

Renée Donohue~Home Photography

Savvy Home Pix - Allegan, MI

Western Michigan Real Estate Photographer

While I wasn't licensed when we had our spike, I have seen the inventory charts and there just wasn't much there! I have NO idea under what terms these sold for and HOW they appraised if they were 100% financing. We watched our house go up $100K a month for four months and then deflate another $100K a month for two months and now the market is correcting downward again.

Money was cheap, the guidelines were loose and it was affordable to buy a house that expensive with cheap money.

My 2 cents for all it is worth. I do still wonder how appraisals were done :)

Aug 13, 2007 01:31 PM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Hi Renee: Your two cents is worth a lot. By any stretch of the imagination, 100k a month is mucho lol. And yes, in the other direction as well. Like your thoughts about appraisals. Does your tax bill go back down as teh market adjusts? My guess is no. Just curious. And thanks for those thoughts!

Aug 13, 2007 02:08 PM

Margaret Rome Baltimore 410-530-2400

HomeRome Realty 410-530-2400 - Pikesville, MD

Sell Your Home With Margaret Rome

Carole, The prices went up 53% in the last 5 years. There was a feeding frenzy. Now they are selling much slower, much more inventory, but the prices are not coming down enough to have another feeding frenzy. Plenty of buyers just waiting for the right time to jump in. Can we wait it out???

Aug 13, 2007 03:08 PM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Margaret I imagine some of your sellers are antsy! But what other choice does anyone have except to wait it out! They are at least lucky to have you representing them! :-)

Aug 14, 2007 12:38 AM

Margaret Rome Baltimore 410-530-2400

HomeRome Realty 410-530-2400 - Pikesville, MD

Sell Your Home With Margaret Rome

Carole, Thanks ..but enough of the accolades, I need ratified contracts. :-)

Aug 14, 2007 12:54 AM

Renée Donohue~Home Photography

Savvy Home Pix - Allegan, MI

Western Michigan Real Estate Photographer

I was curious about the tax bill myself Carole! Ours is capped at 3% so we have just risen in lil bits & pieces over the last couple of years that we would have to lose 50% of our current equity to make that a personal issue. I *would* like to find out for clients and *need* to know that for my business though!

Aug 14, 2007 05:29 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Margaret I hear you!

Renee: okay - I would imagine you are safe from a fifty percent drop in value. One would hope!

Aug 14, 2007 11:00 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Margaret I hear you!

Renee: okay - I would imagine you are safe from a fifty percent drop in value. One would hope!

Aug 14, 2007 11:01 AM

Teresa Boardman

Boardman Realty - Saint Paul, MN

In our market it was simple. There were more buyers than sellers and so values went up.

Aug 14, 2007 12:07 PM

Geno Petro

GenoPetro.House - Chicago, IL

Carole...Thanks for your comment on my recent post (St. Joe). As far as your above post...I, too ponder your Universal question on what exactly determines Prices these days. Great Comments.

Geno

Aug 15, 2007 03:41 AM

Bonnie Erickson

Tangletown Realty - Saint Paul, MN

It was the year 2001. I walked out of a multiple offer presentation. My offer was a full 15% over list price and I had lost. The agent leaving with me commented, "I live in this neighborhood and know what my offer was. It was way too high and I lost. I wonder . . . " I lost at 15% over list. There were 6 offers. How much over list did the winner pay? I never looked. I was too busy trying to land one of those elusive multiple offer presentations to go fishing for how much the winner paid.

Aug 15, 2007 05:33 PM

Jeff Tumbarello

Steelbridge Realty LLC - North Fort Myers, FL

thinking with emotions caused that to happen

Aug 19, 2007 02:26 PM

Diane Aurit

LKN Realty, LLC - Mooresville, NC

Lake Norman Real Estate

I was in SO. CAL. until 2005. What led to the price appreciation in our market was simply supply and demand plus great interest rates. We got up to 60 offers on a property which in a clear indication there were not enough listings. And, our buyers were not investors speculating on the market. Appraisals were not an issue because the precedent to get over asking was set early on. Perhaps if the subprime and 100% loans weren't so easily available less buyers would have qualified. It truly was a perfect storm.

Aug 27, 2007 12:23 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Diane, hello. Sixty offers on one property. That is hard for me to grasp!

Jeff and 'homes': thinking should possibly outweigh the emotion part....but who am I to say!

Gene: I thank you for stopping by! These are the kinds of questions I call mysteries of life!

Bonnie: Maybe you could peek at the results now, if you remember the address; I for one, would be very curious to know. 15% over and you lost.

Teresa: I'm finally getting it: Supply and demand = appraisals that only matter as far as what is mortgaged; I still don't like it, but I get it lol

Aug 27, 2007 04:56 PM

Jason Sardi

Auto & Home & Life Insurance throughout North Carolina - Charlotte, NC

Your Agent for Life

Carole - What is scary is that income hasn't sky-rocketed on the same level that home prices have. Good post Carole and great comments to boot!

Sep 07, 2007 04:17 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Very good point, Jason, nice to see you. The comments are always better than the posts, at least in my case LOL I was educated well on this post!

Sep 07, 2007 04:27 AM

Jolynne Photography, Creative Wedding Photography, Family Portraits, Bar Mitzvahs

Jolynne Photography - Hemet, CA

Bat Mitzvahs, Senior Pictures, Event Photography

Carole: I'm not sure if I missed this in the comment string, but in California one of the things that would happen is that, even if the appraisal came in at $400,000, as long as the seller could put enough cash to bring the loan down to $400,000 (100% LTV), they could buy it for $450k. There were enough people that really believed that value was there to do just this...and the next appraisal had a $450k comp to fuel the fire. Great post.

Sep 22, 2007 04:30 PM

Kaye Thomas

Real Estate West - Manhattan Beach, CA

e-PRO, Manhattan Beach CA

Carole- I took a little time off and missed this one.. what a great post.. You've heard from many in SoCal and it was a zoo here.. it is about supply and demand.. and the fact is that even with a rash of foreclosures because of poor lending practices we still don't have enough housing to meet the needs of our population. Our biggest problem is that I don't think housing prices will collapse to the level that many hope to see meaning that a lot of people will become permanent renters

Sep 27, 2007 04:07 AM

Carole Cohen

Howard Hanna Cleveland City Office - Cleveland, OH

Realtor, ePRO

Hi Kaye how wonderful to see you! Yes I have read quite a few posts since joining AR a year ago...parents lamenting that their kids may never be able to afford a home in their areas with renting or moving the only choice. It's a dilemma isn't it? I'm going to have to check out your blog wecome back!

Sep 27, 2007 04:20 AM