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Are Your Appraisals Too Low?

by Administrator on Sep 20, 2017 Appraisal Industry 737 Views

I just finished reading the latest Realtor article on owner value expectations and how they remain in many places higher than appraised values.  The article talks about how appraised values were 1.35% lower overall than homeowner expectations in August of 2017.  The numbers that are reported in the study are generally small, so you have to think to yourself, wow expectations are not being met in a relatively small number of sales due to what is perceived as appraisal problems.  Maybe they should be focused on something else, like bank lending policies or economic development or something that they can actually change. 

As an appraiser I rely on the sales approach to value single-family residential homes.  It's the methodology that appraisers have relied upon for many years.  Is it perfect?  No.  Does it rely in any way on homeowner expectations?  No.  I don't take assignments, and I never will, worrying about homeowner expectations.  Here is a news flash, appraisers are not employed to make homeowners happy.  I don't care what the homeowners expectations are and no number of Realtor studies are going to get me to focus on that issue.

I understand, Realtors are interested in closing their transactions and they have to deal with listing prices that are continually inflated by owners.  Neither Realtors nor homeowners however control the supply and demand for homes in their particular markets, they are factors beyond their control.  Realtors can't control homeowner price increases and they cannot control market forces so the only part of the real property transaction that they can try to influence is the appraisal. 

My question is, why study homeowner expectations at all?  Is it really important to know what homeowners expect?  Can Realtors try to make things better by confrontation with appraisers?  If a market moves up every homeowner expects his or her sales price to be higher, it "floats all boats" right?  If however demand falls or the supply of available homes increases then market prices will fall, but the expectations of homeowners after the fall are are harder to control.

Studying homeowner expectations is a Realtor ruse.  How else can Realtors find an excuse to attack appraisers and make an excuse for the failure of home values to meet homeowner expectations?  Unhappy homeowners are an insult to a real estate agent and his broker, you can't have unhappy customers, right?  Realtors ask themselves, "how could appraisers be so far from homeowner expectations?"  It's absurd beyond belief that anyone but a Realtor could imagine that homeowner expectations matter that much in a real estate deal.

Market participants are often faced with a problem, all of the sellers have higher and higher expectations and the must buy something, so they bid high enough to buy a home.  They often can't assess whether their offer is at or above that which others have been paying.  I have known agents who could sell you a property 20% above the market and you would thank them for it, they were that good.  If you have a seller pushing for the highest sales price number possible and a good salesman the only protection from being taken is the appraiser.  If you didn't live through the 2008 and prior crashes you won't appreciate just how important it is to keep markets under control.

Appraisers already get a lot of pressure from Realtors and sellers to "make the deal work."  The smart agents have a property appraised before it's listed, then everyone is on the same page and the Realtor is not wasting everyone's time trying to secure and close a deal that is too high.  If you wait until the lenders appraiser has to tell you that the deal won't fly then you are going to make a lot of people upset and your deal may not close.  So this whole buyer expectation thing has to do with Realtors agreeing to list properties at prices that the properties could have never sold at.

Appraisers don't like being put in the situation where they have to be the ones to say "hey, this price is higher than any other sales price that has been closed."  We are not the real estate police and we don't want to be.  Take appraisers out of the mix, something that many are chomping at the bit for, and let's see how long it takes before the whole thing comes slamming down (again) on the head of Realtors and banks.

If you are a Realtor and you think that you are in control of your listings, it may be true regarding many aspects of it, but the seller will usually tell you about that similar home down the street (yes the one that they have never been inside of) that sold for X dollars and that is why their property is worth more.  If you weren't involved in setting the listing price then you missed the most important part of the listing process.

For more appraisal information contact Glenn J. Rigdon MA, MRICS, ASA is a Las Vegas / Henderson Nevada based appraiser who can be contacted via email or via his business website known as Appraiser Las Vegas  (http://www.appraiserlasvegas.com), or you can also click on “Contact Us” on the home page of this website or visit my public profile at LinkedIn at http://www.linkedin.com/pub/glenn-rigdon-ma-mrics-asa/1a/30b/879/

Article source: http://www.appraisalarticles.com/General-Appraisal-Articles/Appraisal-Industry/4666-Are-Your-Appraisals-Too-Low.html

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