I think new appraisal standards are going to lower home prices everywhere.
My last two listings appraised below their negotiated purchase price. Both listings sold quickly and had two offers. My most recent listing was a nicely updated 2,600 square foot 1944 Centerville Home priced at $239,000. Its assessed tax value in November was $247,000. My CMA going back with comparables sold during the last year easily supported $265,000. Our negotiated purchase price was $239,000 + closing costs. We also had an offer at $230,000, but my clients accepted the full price offer instead..... Then, a few days before closing the appraisal comes back with a value of $232,000.
The problem was that the VA appraisal was only able to use comparables going back three months. This winter, Real Estate was dead slow in Northern Utah. There were only a few moderately comparable comparables of houses that were substantially inferior, but that's all the appraiser was allowed to use to support a value for the lender. Now does a lender really care about a value created by three somewhat comparable sold properties, or do they want to know what a property is worth, what it will really sell for?
As it turned out, my client had to reduce the price a bit, we agents sacrificed our commissions a bit, and the buyer settled for a thousand less in closing costs to make make the deal work. After the concessions my clients would have been better off if they accepted the $230,000 cash offer. If only they knew their house wouldn't have appraised at $239,000.
If all appraisals can only go back three months, this could soon become a downward spiraling trend. Home sales are picking up in Utah, but are still much slower than last year. When the next nearby house sells, my clients home will be used as a comparable. Their appraisal won't be able to support their market value either because all the recent comparables were lower.
In my opinion, appraisers need to consider market value more when determining appraised value. Market value is not determined solely by how much three recently sold properties went for, market value is what an able buyer is willing to pay for a property. If several different people are willing to pay more than $232,000 for a house, then market value is probably more than $232,000.
Alan Barker
