Real estate appraisals and true market value. Where do I start?
You'll have to eExcuse me while I ramble a little bit on this post. I'm just going to dump all my thoughts right here, without choosing a side, or even sticking to a specific angle. Please read carefully!
I just read a post my Rich Kruse, titled "Appraisals vs Market Value". Read Rich's post to find out the drastic differences he found when he had other real estate agents do a market analysis/BPO to compare to recent appraisals on the same properties.
Rich made the statement that he doesn't believe appraisals anymore. That got my mental wheels spinning. I know we have a lot of appraisers here on Active Rain.
I read a post yesterday by Sara Goodwin, titled "More Crazy Things That Lenders Decide to Put in Writing". Sara is an appraiser in Oregon.
I'm not trying to pit the REALTORS and Appraisers against each other. Let's face it. We need each other. But I am interested in hearing opinions from professionals in both fields.
We know that banks have been kicking back many appraisals in the last few months, and taking it upon themselves to lower the appraised values. The bottom line is, the banks believe there is more correction to be made in the real estate market and they're going to cover their assets. (No pun intended)
So here are some of my thoughts... If appraisals are coming in too high, I personally have a huge problem. One of the ways I help my buyers feel comfortable with making an offer on a house, condo, land or whatever they're interested in buying, is to add a clause that's similar to this... "This purchase is contingent on the subject property appraising at or above the contract price. If subject property does not appraise, buyer's deposit will be refunded in full". This type of clause will usually calm the buyer's concerns about over-paying. But if the appraisals are no longer the determining factor of real estate values, then what is?
Of course there's always the age old rule that "A property is worth whatever a buyer is willing to pay". But right now, buyers aren't even sure what to offer. They need a professional in the field of determining real estate values. If the banks, are no longer valuing the opinions of the appraisers, that sends a strong message to the buyers that the appraisers can't be trusted. Of course that just puts the appraisers in the same boat with every other professional in the real estate industry. The finger pointing is at an all time high, which is further eroding the confidence of the consumers. I'm not saying I disagree with Rich's opinion on appraisals. The erroneous values he discovered are alarming! So my questions to appraisers are...
- When you're doing a appraisal on behalf of a seller, do you try to keep the seller happy by valuing the property as high as possible? (Many real estate agents have made this same mistake.)
- OR is there a possibility that some appraisers are still doing business the way they would in a seller's market? (Many real estate agents are guilty of this one too.)
- How big of a problem do you think it is, that lenders have required the appraisal to come in as closely as possible to the contract price? (Read my post titled "The House Appraised For How Much?")
- Based on question number 3, with each lender now making drastic changes in their policies pertaining to the appraised values, are we seeing a complete breakdown in how real estate is valued?
I had one more thought about the appraisal factor. Call it a conspiracy theory if you like... Banks have been trying for years, to position themselves in every aspect of real estate. By eroding the confidence of the consumer, are they trying to position themselves in the eyes of the consumer, as the only accurate and reliable source for all things pertaining to real estate?