Appraisals are typically regarded as the most accurate measure of a home’s value, and for good reason. Licensed to perform one task and one task only, appraisers see and evaluate property all day, every day. While some of us more egocentric Realtors feel that we put more time and effort into our own opinions of value, considering we will ultimately bear the responsibility of bringing the home to market and selling it, that bit of vanity is neither here nor there. Appraisers, though many underwriters these days are loathe to admit it, are still considered the ultimate authority on worth outside of a willing buyer and seller.
Appraisers, however, are often hamstrung by their own guidelines in keeping pace with the current market. This can be beneficial, such as when prices were artificially exploding between 2005-2006. We agents lamented the stodgy appraisers who were too rooted in the past (closed sales) to acknowledge the present (upward trending prices) while values were exploding. You couldn’t attend an office meeting without a colleague or six bemoaning the bozo appraiser who didn’t grasp the current market. If only our industry at large had been so conservative.
Normally the protective ally of the bank and the buyer, I have noticed an interesting shift as of late, however. Appraisers have become a seller’s best friend. Before you toss me out on my heretical ear, hear me out.
Appraisers have begun to view the market in two distinct categories. There is the general non-distressed resale home market, and then there is the foreclosure market. When evaluating a property, most seem to have taken to lumping properties into one grouping or the other. Their subsequent findings are based upon the homogeneous pairings: bank-owned properties are comped against other bank-owned properties and standard resale homes are comped against other standard resale homes.
It sounds great in theory, but the problem with this new pattern is two-fold. First, there is the matter of pure sales volume. The action in our current market is more heavily dominated by foreclosure properties than any point in memory. It’s undeniable. The mini sales boom that has seen a steady increase in total closed and pending sales in each of the last several months here in the greater Phoenix area is due in large part to the allure of these lower priced options. As such, it is just not feasible to ignore this growing segment of the market when trying to determine the value of a home. The data is often quite scarce when trawling for non-distressed sales upon which to base an evaluation. By and large, the higher priced resale homes just aren’t selling with a great enough frequency to provide adequate comparison data.
The other issue is the problematic assumption that a buyer cares. If the home next to your own has been foreclosed upon and is listed at $200,000 less, do you honestly think the buyer will buy yours if all other things are equal? Is a buyer really expected to see anything beyond the price and the condition? The label of “bank-owned” versus “resale” is wholly irrelevant to what a buyer is willing to pay. Shoot, I have seen quite a few remodeled bank-owned or short sale properties that put many dog-eared resale listings to shame. And yet, they are somehow devalued or eliminated from the consideration of value for other homes in the neighborhood simply because of the conjured stigma. Buyers may start their search with one particular market segment in mind (distressed property shoppers looking for a deal, resale shoppers looking for a well maintained home), but they will ultimately look at everything that fits their price and need requirements. Labels be damned.
I sure like it when my appraisal tells me my home is worth more by ignoring completely the last four neighborhood comps, but I know the real score. No buyer will pay me what my current appraisal tells me it’s worth. No way. I know better than to be the ostrich who thinks that the homes that are actually selling right now have no impact on my property value because they are “distressed.” Guess what, buckaroo, those sales are distressing the entire market. There may be microcosms within the market at large, but they are amoebic. The uneven boundaries protruding against each other as they occupy overlapping space.
So while there is still plenty of benefit in having your home evaluated by a neutral authority, just remember not to spend all of that anticipated equity before your buyer signs on the dotted line. You just might be unpleasantly surprised when he doesn’t downgrade the competition or recent sales comps like your appraiser did.