Soaring Home Prices Are Roiling Appraisals and Upending Sales

[mahatmakanejeeves]

Source: The Wall Street Journal.

REAL ESTATE

Soaring Home Prices Are Roiling Appraisals and Upending Sales

More properties are being valued below their agreed-upon sales prices, causing deals to collapse

About 13% of appraisals of homes came in below the contract price in August, according to housing-data provider CoreLogic.
PHOTO: BRANDON BELL/GETTY IMAGES

By Nicole Friedman
https://twitter.com/nicolefriedman
[e-mail]
Oct. 10, 2021 5:33 am ET

Jason and Talitha Brooks listed their house in Orange Park, Fla., in June at $320,000. After receiving multiple bids, the couple accepted an offer at $335,000. But the appraiser, hired by the buyer’s lender, valued the home at only $305,000. The Brookses and the buyer couldn’t agree on a new purchase price, and the deal fell through.

“This whole appraisal process, it’s just so subjective,” Mr. Brooks said.

An unusually high number of homes across the country are being appraised below their agreed-upon sales prices, causing a number of deals to collapse.

Home prices have soared in recent months. (1) Buyers are frequently paying above asking price to win bidding wars, and appraisals haven’t always kept up with those rapid price increases. About 13% of appraisals came in below the contract price in August, according to housing-data provider CoreLogic. That was down from a recent high of 19.7% in May but above 7.3% in January 2020, a rate CoreLogic said is more typical for the housing market.

“I don’t remember any time where the frequency of buyers being willing to pay so much more than the market data was this high,” said Shawn Telford, chief appraiser at CoreLogic.

The gulf between contract prices and appraised values highlights the risks to buyers in the current market, especially those stretching their budgets to win a bidding war. Mortgage lenders will typically lend only enough to cover the appraised value of a home. So when an appraisal comes in below the contract price, the buyer has to make up the difference, renegotiate the price or let the deal fall through.

{snip}

(1) https://www.wsj.com/articles/u-s-home-price-growth-rose-to-record-in-june-11630414873

Read more: https://www.wsj.com/articles/soaring-home-prices-are-roiling-appraisals-and-upending-sales-11633858381

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I Googled "Soaring Home Prices Are Roiling Appraisals and Upending Sales," and they let me see the whole article.

[Ford_Prefect]

1. One more Great American Fantasy: COVID era home prices.

Our area homes have nearly doubled in price since the end of 2020 for no appreciable reason except that hype has made it so.

[TeamProg]

7. Material costs to build a home from scratch skyrocketed this spring, that demand raises prices on

existing homes. Also, people moving from the expensive cities to less expensive suburbs thereby raising suburban home prices. Geez, have you seen the prices of houses in OR, WA or ID lately? Climate / fire migrants from CA are in-part causing those increases.

The high cost of new cars and trucks is raising the price and demand for used vehicles, we still need to get around.


Ford, I heard the answer is '42'.

[Ford_Prefect]

13. I don't live in a suburb. I'm in rather rural western Montana.

The hype I'm referring to is by the Real Estate Industry, and to some extent the idiots who fantasize this area is some kind of haven from Fire, COVID and Democratic rule.

Our prices look like those in URBAN areas for no reason other than Hype. We had dangerous air pollution levels for most of 3 months this year due to fires in California, Oregon, Idaho, Washington, Canada, and Montana. We have a 5 year drought affecting crops, livestock, safe wildland activity and raising wildfire potential. Except for Bozeman we have a rather weak economy since COVID hit. We have a a vaccination rate that has stalled at just under 50% since June... And all the new people with lots of money to spend are raising costs faster than COVID has.

The Real Estate industry is hyping the colorful vistas and the relatively low prices (which are rapidly evaporating) along planting stories about how great living here is. The only real advantage to living here for someone from Urban and Suburban America is the distance between most houses and communities. What has Resulted is that in certain select areas an enormous swath of urban sprawl is gobbling up the arable land. There are days when you cannot drive in town here because so many newbies are racing from store to store as if on the 405 freeway.

Along with putting pressure on those of us who used to afford living here this is a bad scenario during a COVID spike. You cannot eat scenery or real estate, and it won't pay for the extra costs of fuel or food, or the demands put on our infrastructure and health system. The people moving here have cash but they also can carry debt. You can't borrow like that on a retirement income. The Real Estate boom here is as toxic in some real ways as the y'all queda militias and the MAGAT Governor are.

One question I have is what is happening to the housing markets where all these newbies have come from???????

They aren't moving here for a booming job market either.

[TeamProg]

14. One question I have is what is happening to the housing markets where all these newbies have come?

Housing in Calif has largely flattened out. But it's also the season.

I agree that there is a bubble but I don't see it as unusual.. low interest rates mostly, work from home movement, when houses start moving it always LOOKS like real estate hype.

The market demand truly sets the selling price, however temporary. Unfortunately agents 6% commission isn't ever affected by the market. That's the real scam.

[Ford_Prefect]

16. The real estate people who keep calling to sell my home aren't doing it

for 6%. National companies are manipulating perception to benefit from the low interest rates.

The scam operates to suit demand by inventing a product. They did it when areas like Lincoln, Nebraska became the new home for software companies. Bozeman, MT has seen the same.

While those cities have reason to rejoice we do not. When the Real estate outfits saw potential in marketing less dense communities to city folk with money they started offering every postage stamp on the page as Nirvana. I recall the change in marketing on the pages of magazines (yes, that was when paper was the medium).

Local communities not yet protected by modern concepts like ZONING have been inundated. Watersheds not yet protected from depletion and over-use now face the Colorado River syndrome. Light pollution at night and air pollution from excessive traffic are real events in the valley here because of this.

It would be one thing for it to happen in some gradual form. This is not yet a land rush, but it would be if builders hadn't been handicapped by COVID supply chain problems. FYI No One is building affordable housing of any description at all.
Everything has been priced to sell at nose-bleed values and as a result rents are astronomical. This isn't market value its nationalized corporate greed.

I shudder to think what will happen when the millions of people who depend on the Colorado River basin for water decide they need another Shangri-La...But maybe they already have and national real estate firms are already setting up for the kill.

[TeamProg]

17. Hmm, so the original story line that appraisers are not coming up / matching the agreed sale price

makes appraisers the hero here?

It is the low interest rates helping demand along with the equity many buyers have in their city properties. An ordinary house marketed as a castle speaks to the issue of why the appraisers not matching - which again, is a different issue than the value to a buyer and what a buyer is willing to pay.

I have gotten 4% a couple of times but only b/c my selling broker / agent only took 1% but the buying agents ALWAYS got their 3% otherwise they'll blacklist your house / not show it and tell prospective buyers that there's something wrong with the place or title or anything they want. Realtors are some of the biggest liars I swear to god.

[leftieNanner]

15. Southern Oregon Resident here

Our prices have gone way up too. A real estate friend of mine told me that it's a lot of Bay Area techies who are tired of the traffic etc who are moving up north. They can work remotely and it's an easy 6 hour drive if they have to go back to the office for a meeting. They want a smaller community with good schools. We had terrible smoke in the valley again this summer, but that doesn't seem to have slowed the housing market at all.

We are considering moving to the Seattle area. Same real estate problem up there - even if we would be down-sizing.

[Marthe48]

2. I heard that the U.S. is about 5.5 million short on single fam. homes

I met a realtor at a bbq in Aug., and she said then that the U.S. is about 2.2 million houses short of need. I heard the other day that we are also short on rentals. People can't offer extra to rent a place.

I recently made an equity loan on my paid off house. The value is about 3 times what we paid. I laughed out loud when the bank officer told me. I'm not crazy about the current noise level, and think about moving, but I don't think I could afford a house like this, even if I sold this house and went looking.

[marybourg]

3. This acts as a damper on those prices.

In a small way.

[Zorro]

4. Appraisers aren't above reproach and lowball appraisals can be suspiciously inaccurate

Years ago I put a house on the market and the buyer's appraiser came in with a value significantly lower than comps in the neighborhood (which he ignored and used comps from other areas).

I found out later the appraiser was married to a saleswoman who was fired by the original neighborhood's developer. Sure made me wonder.

[Bluejeans]

5. What's an appraisal? Bought 3 houses in 25 years, no appraiser walk-through...

The appraisal business is a racket of smoke and mirrors.

I bought a house in Clark County, Ohio in 1993 using a VA loan. The appraiser never walked through the home according to the seller who was retired and home all the time. The loan officer told it was a "drive-by appraisal", meeting the agreed upon selling price.

I bought another house in Miami Township, outside Dayton in 2004. Same appraisal situation as 1993.

I bought a third house in 2018 in Bellbrook, Ohio, on the east side of the Dayton Metro Area in Greene County, Ohio. Same appraisal situation as 1993 and 2004 except the valuation was $10,000 more than the agreed upon sale price.

I sold the 2004 house in 2020. No appraiser asked my agent to walk through the house to assess its condition.

Nothing but a racket.

[Puppyjive]

8. Lucky guessers

My husband and I made an offer on a house. The sellers agreed after a bit of back and forth. Turns out we guessed the exact amount the house appraised for and our deal went thru. Now if this is not a rigged game, I don't know what is. I am happy to see the appraisers backing down on such high prices. Our taxes continue to rise and our future generations only hope of home ownership is by inheritance. That is just wrong. I was able to purchase my first house at 26 years old and I was able to make the payment easily.

[NotHardly]

6. Frankly, apparisers I've run into are incompetent arses... who you are makes the $$$$

I've used appraisers several times and let me tell you, it's like hiring a 5th grader to do work. They are biased, prejudiced and frequently just plain lazy or incompetent. I always have 2 done after I've checked their 'reputation'... I've learned not to trust those folks... never trust them.

[LakeArenal]

9. That's exactly what happened to us.

Real estate agent: $189,000
Buyer. $186,000
Appraisal. $180,000

We had to eat it as we had auctioned off all our stuff to move to Costa Rica.

[melm00se]

10. I sold my house in June

and was worried about the offers being way higher than my listing price but the ultimate buyer put in a "if the appraisal is less than the offer, we will cover the difference" clause into their offer and tossed a $25K non-refundable check on the table.

They didn't need to worry as the appraisal came in a couple of thousand over the offer.

[madville]

11. It seems to have calmed down here in my area of Florida

I built my current house on 6 acres right before things got crazy with Covid. Land and everything was about $300k. I probably could have gotten almost $400k for it earlier this year when lumber skyrocketed and so many people were moving here. Bigger house across the road on 3 acres sold for 480k recently and one right down the road on 2 acres is currently listed for $750k, it’s realistically a $500-600k house at best.

[IbogaProject]

12. Pay more for a MAI certified appraiser

Pay more for a MAI certified appraiser, they are always very close between different appraisals. At the price range the variation would likely be under 6,000 maybe even less. Properties can be valued three ways, comparables (most variable), rent ability (what the property could rent for) and replace ment value (cost to build new on same lot). A cheep appraiser might not have goid comparables for #1 & #2 and they won't do all 3 and use a formula to combine the 3.

Again use a MAI certified appraiser if you want to avoid this situation.

[Farmer-Rick]

18. Yeah, the appraisals I've had on my farm have been all over the place

They are as much as $100,000 off. But part of it is they don't get the number of acres we have right. Then it's the small number of sales in my rural area. But, to refinance, we got an appraisal that was about $100,000 less than what my taxes claimed we needed to pay for. So, after talking to the tax appraiser and the bank appraiser, we got to a price between the 2. Then out of the blue, a house flipper approaches me and offers double the new appraised price.

I really don't want to sell because I have to still buy in this crazy market. And I really love my place. I think I'll hold on to it for my kids.

[Johnny2X2X]

19. Things are slowing down in West Michigan

Has been one of the hottest housing markets in the country for a couple years, but you're starting to see homes sit a bit before being sold, and the bidding wars are dying down. I think a lot of frustrated buyers are sitting out right now.

The lower interest rates absolutely drive the purchase price up. You can get 3% right now, that means your monthly payments are lower for a more expensive house. People budget their houses based on monthly payments, not purchase price.

I refinanced to take advantage of both the lower interest rates, and the fact that the elevated values allowed me to get rid of PMI on my payments. I saved over $300 a month, the closing costs will be paid for in 12 months. Was a no brainer for me.

[RobinA]

20. In My Area,

SE Pa, people are just paying cash for the amount above the appraisal amount. It's insane. This has been going on for all of 2021. I'm surprised that it hasn't cooled down by now, because it's clearly a bubble. You can't get a house around here for the asking price, you have to go higher. I have no idea why anyone would buy a house at this time except in some kind of dire emergency.