Houses are selling like hotcakes, but appraisals are not keeping up to date
By Guest Columnist BILL GOLDEN, an independent Realtor with RE/MAX Metro Atlanta Cityside
You know what they say about there being no rose without a thorn? Well, the real estate market in Atlanta is looking quite rosy these days, but that does bring its share of thorns into the landscape.
With a record low inventory of homes on the market, houses are selling like hotcakes. Every agent I know has a backlog of ready, willing, and able buyers waiting for the right listing to come up. The same scene plays out over and over again — a good new listing comes up for sale, and there are multiple bids on it within a few days, sometimes within a few hours.
While this is extremely frustrating to buyers (and their agents), it’s good news for sellers. Most often in these situations the seller ends up getting very close to what they’re asking, and in many cases, more. This is a simple case of supply and demand working the way it has always worked – even though that give-and-take was certainly tempered by the economic stresses of the past few years.
One of the challenges we’re facing in this much-improved real estate climate is the lender’s appraisal of the home once there is a contract in place.
As they’ve always done, appraisers are using the closest and most recent comparable sales, though in some cases, these “comps” are from several months back, even six to eight months back. Normally, that is a reasonable time period to judge the value of a home in any given market. However, with the market rapidly changing, that’s not always the case.
Just as buyers have had to adjust to the new normal in the market, so must the banks and their appraisers. Homes are selling for more than the comps suggest they should, but these are not over-inflated prices. These are actual sales where the price was driven up by pent-up demand. Isn’t that what fair-market value is supposed to be? What price a seller is willing to sell and a buyer is willing to pay?
I realize that banks and mortgage companies have very strict rules and regulations for their appraisals, and who can blame them after what happened to the market a few years ago?
But this is a very different scenario. Back then the market got inflated because people were given loans for which they never should have qualified. Believe me, lenders have made plenty of changes in their policies, procedures and qualification processes since then. It is much more difficult to qualify for loans than it use to be, and again, I understand why.
What will ultimately happen if the appraisal values aren’t adjusted for the current state of the market is that the prices will be suppressed, which will turn off potential sellers and the frustrated buyers will drop out of the market and continue to rent. In fact, that is already beginning to happen.
The booming real estate market is very exciting, and certainly a good sign for the economy in general. Let’s not hold it back.
In the meantime, what can buyers do to be best prepared to strike in this market? As always, it’s important to get pre-qualified for your potential mortgage. And this is no time to deal with a lender who is not nimble. It is to your advantage to have a lender who is accessible and familiar with you and the market in which you are buying.
Otherwise put yourself in the best cash position possible. That may mean having more down payment on hand, deferring other purchases that will ding your credit. And be prepared to be the most-ready, best offer the seller and their agent will see.
Work with a Realtor who knows you and the specific market segment in which you are buying. When the stakes are high, you need representation that can ferret out pocket listings (those that may not even be listed yet or were listed a year ago and not sold or could be for sale under the right circumstances), who knows the true value of specific types of property in specific neighborhoods, and who can advocate for you tenaciously.
Lest you think I am self-advocating on the point of using a real estate agent, let me be clear — a good agent will refer you to another trusted agent if he or she does not actively sell the type of property for which you are looking or in the area or price point in which you are looking.
Just as appraisals will have to keep pace with the changing market in order to let the market continue to boom, so too will you and your representatives.