With prices increasing as fast as they continue to do in Phoenix and the East Valley real estate market, you always worry about appraisals keeping up with the demand.
The issue with prices increasing so quickly is finding comparable properties to use for a home priced to take into account the rising demand and prices.
Sometimes they get it, sometimes not
In my experience, over the last few months it sometimes appraisers understand the market trends, and sometimes not so much.
I have seen some extreme exams in the last few months. In one case, we put in an offer on a condo in Mesa and negotiated a price of $90,000. I told my clients based on recent sold properties, and looking at the condition, I believed the place was worth 92-94k. We were shocked when the appraisal came back at 85k.
In another situation, we negotiate a price on a starter home in Queen Creek for 103k. I told my clients based on comps I’d be shocked if it appraises for more than 95k. Most likely lower than that. I almost fell out of my chair when the appraisal came back at 103k.
After further review
I took a closer look at both appraisals, and they could not have been more different. The first on I thought the appraiser did not give nearly enough credit to the condition of this property compared to comparable properties in the same subdivision. I thought they gave too much weight to comparables that were foreclosures that needed complete remodels and not enough weight to other properties that had been remodeled recently.
In the second case, when I reviewed the comparable homes used, I was blown away by how much the appraiser stretched to do everything they could to make the home appraise at the contracted price. The appraiser skipped over comparables that had recently sold in the same subdivision and reached out to homes in another subdivision that was a mile away where the home values were higher. Unlike the first scenario, this appraiser was doing everything they could to make sure the deal happened.
Bottom line, in this market I have given up guessing what the appraisal will come in at. I believe I could hire three appraisers to look at the same home and come up with appraisals that have as much as 20-25% variation. If you are looking for an appraisal to come in at a certain number, you need to make sure you have a realistic plan what you will do if that does not happen.
If a house does not appraise the seller cannot force the buyer to make up the difference and the buyer cannot force the seller to drop the price. Next week we will look deeper at what to do when appraisals come in low.
Image credit: <a href=’http://www.123rf.com/photo_7810328_blindfold-businesswoman-signing-a-contract-isolated-on-white.html’>hjalmeida / 123RF Stock Photo</a>