|I know you wonder...How will Appraisals keep up with Current Market Trends, especially in an increasing market place? Many feel that the Appraised Values fall behind current day values.|
First let us look at the Past....We were there before and Appraised Values did "catch up" to Current Day Values. Speaking of Past, that is what Appraisers must do, look at past sales and trends to provide Current Day Value.
Here is one big PROBLEM: Lenders, Fannie, Fredddie & HUD Requirements. While Appraisers can make Market Time adjustments upward to their Comparable Sales in order to reflect increasing values from the date the home went under contract to the current day, this cannot occur across the board. It is called Bracketing. Appraisers cannot make upward OR downward adjustments across the board for anything, especially when it comes to Market Time Adjustments.
Until Lenders, (Fannie and the rest) decide that FORECASTING values a few months into the future is the way to go, based upon past market trends like Relocation Companies do, then we are stuck with using the most Recent Comparable Sales that exist and IF we can PROVE increases in market, then we need to make a market time adjustment. If we try to make market time adjustments upward, across the board, we better have VERY good support for those adjustments. Trust me when I tell you most Lenders will NOT allow this to occur. They have the opportunity to have any appraisal REVIEWED by another Appraiser and most likely that other Appraiser will NOT be making across the board adjustments upward for market time.
One Positive Impact on Values: CASH SALES. Believe it or not, even though Cash is King and they should get the best deals from Sellers since no loan is involved, more times than not when I see a Sale and think...that seems high...it was a CASH sale. Some buyers do not care if they are over paying. (Buyers Realtors should). If there is a bidding war or buyer frenzy going on, they can afford to bid it up over those that cannot as they must qualify for a loan.
** Appraisers will use those Cash sales and even though it may appear they paid OVER market, most Appraisers will not make a downward market adjustment** Therefore some CASH sales will help to raise values over time. Just because someone is willing to Pay the Price it does not define market value. That is a topic for another Blog Post!
So what do you DO as a Realtor when no cash sale is involved? When you put together your BPO's or Market Analysis for a home, do not List that home considerably (over 5%) HIGHER than any other sale of its kind or you will likely run into problems and the SELLER needs to know this upfront. If you see that supply is very limited and prices are going up and the home you are listing is in keeping with that market, then you need to leave information at the house for the Appraiser, including Reasons & Support for why you listed the home over all recent sales. Give them something that you know exists in that area, which proves UPWARD market movement. STATS are King in the Appraisal World. Realtors may know some intricate details about a particular area or development that the Appraiser will not be privy to in his or her every day analysis.
The more information you can provide the better. Always include that BRAG sheet including Costs of Renovations for the Appraiser, along with the Comps you used and WHY you used them.
Remember if you provide Comps to an Appraiser, you have to provide COMPARABLE properties and refrain from providing comps that all sold at your Sales price or higher because the Appraiser will see that you are basing your Comps on Sales price only. BRACKET your Comps....in other words, use sales that sold UNDER and OVER your sales price and then make notes on those FMLS sheets to show why that one sold UNDER and why the other one sold OVER. This is exactly what Appraiser must do. Bracket Sales and make adjustments where they vary from the Subject.
If you follow these steps, the Appraisal process will "catch up" sooner rather than later with the market.
** WHEN IN DOUBT.....Get a Pre-Listing Appraisal. We WE complete these types of reports, we MIMIC as much as possible what is required by the Lenders so you have no surprises come Bank Appraisal Time.
Thanks for reading and feel free to pass this information along to those in your Office.
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