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Appraisers Use More Than Just Sold Properties To Determine Market Value

By
Real Estate Agent with Keller Williams Heritage Realty

In years past, when an appraiser in Central Florida determined the value of a property that was under contract by a Buyer, they did so by using closed sales.  Of course, consideration was always taken when the appraiser selected the comparables used to make sure that they truly were comparable, but never before have I known an appraiser to use "pending" or "active" properties to determine what the price should be for a home under contract.

Until now.

Within the last few months, it has become evident that lenders are attempting to minimize their risk by requiring that appraisers evaluate not only closed sales, but also properties that are active and currently under contract when determing the value of a home.

Kelly Kellogg, a property appraiser in Central Florida, verified that statement today in a presentation held by one of the largest lenders in the South, SunTrust Bank.

Ms. Kellogg indicated that loan underwriters are requiring that appraisers provide at least three closed sales (preferably within the last 30 days, but up to 90 days will be accepted), one comparable pending sale and one comparable active sale.

While in theory this might have merit, I wonder how it is that properties that have not sold, or are being listed at a price that may never get accepted (as a short-sale or pre-foreclosure) can truly be used as comparables when determining the value of a home that a qualified Buyer has made an offer on?

As a Buyer's Agent, I am quite concerned that if this method of appraising properties continues to be accepted, then the real estate market will continue to decline.  By using active and pending properies, the value of homes owned by Sellers who are not in distress will be be driven down by those who are...which doesn't quite seem fair to me.

What do you think?

LaShawn Norden, PA, REALTOR, RE/MAX Central Realty, (321) 377-0157, LaShawn@LaShawnNorden.com

 

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Comments (4)

Maria Morton
Platinum Realty - Kansas City, MO
Kansas City Real Estate 816-560-3758

An agent in our office has a condo for sale. The owner is being transferred to another state. The company had them list the condo at a price the company determined the condo will be worth in SIX months from now if the market declines. ????

Jan 22, 2009 05:46 PM
Heather the Realtor Orlando, Lake Mary
LemonTree Realty - Orlando, FL
First Time Home Buyers, Bank Owned Homes

That is what you must do when doing bpo's and appraisals and a reo agent. I sort of understand where they are coming from they are trying to protect the client by lending them money on a home that is going to lose value. I bet the lender though has to find a non reo active.

Jan 23, 2009 01:29 AM
Paddy (Patricia) Pizappi
Better Homes and Gardens Rand Realty - Pine Bush, NY
Real Estate Associate Broker Hudson Valley NY

I can understand it and you are right they will continue this slippery slope until we can get more closed sales to use.  I think that may be the problem here at least It is hard to get closed comps on some listings and the banks don't want to hear about closings more than a few months old.

Jan 23, 2009 01:37 AM
Michael Regan
Deerfield Beach Appraisers - Deerfield Beach, FL

I'm an appraiser, and many times the lender does ask for an active listing and/or pending sale be added to the report. I am familiar with the scenario posted by LaShawn concerning the listing of short sales. I don't use short sale listings in my appraisal report because I know they may sell higher than originally listed. It is helpful to look at non-short sale and non-foreclosure listings in the market. The appraisal form requires the appraiser to list all comparable listings in the neighborhood as well as all comparable sales which sold in the past 12 months.  Example:  comparable active listings: 12   price range: low: $100 high: $200.  The same format for sales in 12 months.

Jan 28, 2009 04:30 PM