Shrinking Housing Market Affects House Value Appraisal
It’s widely known that the housing market has witnessed a steady recovery in many areas of the country. It is also becoming increasingly evident that due to a lack of inventory in a multitude of markets, there are obstacles for those of us working in the industry for Home Sellers and Buyers. What is important is to create awareness of the current challenges we face in light, specifically in the second quarter of 2014.
Over time it has been common to witness MSA’s where a lack of inventory has driven pricing in an upward trend due to demand (Phoenix, Los Angeles, Orlando, etc.). While the trend is more common in warm weather states, many areas of the Great Lakes Region are now navigating through an inventory shortage as well so we have to be readily armed with the right information. The main challenge is in how we may be able to justify swift increases in valuations in accordance with regulated lending.
“The lack of inventory is a big obstacle for the housing market right now. It becomes a supply and demand issue; without more homes available, home prices will continue to rise.”- Jed Smith, managing director of quantitative research for the National Association of Realtors.
Good news for home values – yes – but it is important to realize the counter-effect in determining whether a home’s value is true and accurate as opposed to artificially inflated.
In accordance with current appraisal requirements, Appraisers are required to view each property, utilizing the most similar and recent comparable properties sold to assist in determining a property’s valuation (ex. an Appraiser will view a comparable property that sold in the past few months in favor of a comparable property that sold in 2013).
To a Lender, more recent comparable properties provide a more current and perceived evaluation of the current market and as inventory was much more abundant in the Great Lakes Region during the winter months, sales prices for similar properties may have been lower even three to four months ago than are available today. With an active third quarter of 2013 and first quarter of 2014, many comparable sales from this time-frame are available and if sales were lower in a specific
The key to success is a realistic approach in determining a home’s value, including advanced detailed research through a Licensed Realtor to ensure a property fits within a supportable price range. Save any market-based data you may have researched to support a value in the event you need to provide additional supporting material if you do encounter a low appraisal. And don’t panic. Realtors and Lenders will continually work together to explore every angle to ensure the appraisal meets within regulatory compliance and as important, and benefits Buyers and Sellers, that can potentially impact a property’s appraised value today.