Is The Housing Market On Solid Recovery Ground?
In many housing markets around the country, there is growing evidence of a housing recovery. Even some of the hardest hit areas of the country where outside market forces like slow job recovery and low wage recovery have hurt, the areas are showing signs of a strengthening housing market. Prices are going up, permits for new builds are increasing and sales to home owners are increasing while investor activity is taking up a smaller percentage of market activity.
All of these should be positive signs for housing markets and real estate investors who are buying investment properties. Yet, not everyone is convinced of a recovery and there continues to be a drag on one specific activity in the market place. Appraisals have not caught up with the demand for housing and stubbornly slow value recovery is causing some home buyers and investors worry. More specifically, if prices are trending up, why are values for some properties and specifically investor purchased properties, continuing to remain low?
Appraisal Values Are Slow To Catch Up To Contracts
In some markets, values of homes have gone up significantly and possibly even between contract and closing. This volatile value assignment climate has made life difficult for appraisers. Compounding the problem of a fast moving market, experience in a profession that badly needs it has taken a hit as well. Over the last few years, the ranks of experienced appraisers have dwindled as many opted to retire, change occupations or change their focus from residential real estate to other forms of real estate like commercial or even appraisal reviews. This has led to multiple problems that have been discussed for years in different forums, from younger, less experienced appraisers to appraisers that are willing to travel in some cases 100 miles to get appraisal orders and often at low rates.
The days of being able to call an appraiser and get an accurate opinion on properties are gone as well. What should be considered a safe practice and a safety net for individual investors is now frowned upon. Having contact with an appraiser, even though they are not appraising your property for a loan, is considered an attempt to somehow circumvent laws set up to keep arms length in transactions. So investors and appraisers both are now weary to even discuss values of properties. At one point in time, this was the best way for investors to evaluate a deal before buying and today it is not allowed.
What has resulted is a new set of appraisers who are not out looking at houses before they are renovated. They are not on the streets or talking to investors and buyers before they buy properties to know or have an understanding of work that is being completed to vacant properties in neighborhoods. Appraisers only contact now is with AMCs and with banks who are hiring them to appraise properties after a buyer has requested a loan. That leads to appraisers that are not connected to the real world and the buyers that are making markets move. They have no idea of what is really happening in a market because they have no connection to it. Experienced appraisers who have been doing it for years and have been through real estate cycles are choosing other professions. The new appraisers are doing the best they can but for less and less money and with less and less contact with the buyers who are buying and renovating properties.
It is leading to an environment where values are slow to catch up with contract pricing and those buying homes are feelings the effects. It is estimated by N.A.R. (National Association of Realtors) that over 25% of all properties are appraised below the contract price. This is a trend that exists across the country and polling of NAR membership identifies a high number of Realtors across the country who claims that low appraisals have prevented contracts from closing. One out of every four is a significant number of deals where the market is showing signs of price recovery and an appraiser pulls the pricing backwards.
I am not advocating that buyers be allowed to talk to or try and influence appraisers. That is certainly not a solution and the communiation with appraisers would only help in very narrow ways. I am also not saying that appraisers are contributing to low values. Appraisers have a job that is hard enough already with time and income pressure. Add to it the points above where communication is limited and an appraisers understanding of what is contributing to a rising value is difficult to gauge, and there is an environment where values keeping up with contract pricing is difficult at best. In all cases, an appraisal is one persons’ opinion on the value of a property and often three different appraisers could come to three different opinions. But there continues to be evidence that buyers feel good about the housing market. Individual markets seem to have buyers feeling even better than others! Hopefully appraisal values can catch up with the market sooner rather than later and assist with the positive feelings that buyers are showing toward the housing market.
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