Mike Klijanowicz: Under-appraisals
Today's guest poster: Mike Klijanowicz, a real estate agent with Long & Foster in Perry Hall who has been the top individual producer in his office in listings and sales since 2008. He brings thoughts from the field on an issue that can slam the brakes on a transaction.
He works mainly in and around Baltimore, Baltimore County and Harford County, with clients ranging from first-time buyers to investors.
Take it away, Mike:
A few short years ago most people never thought that their homes would ever "under appraise." Back then home prices were only going one way -- up. However, in today's tumultuous real estate world, under appraisals are becoming more and more common. With all of the foreclosures and short sales that have flooded the local real estate market and the many more thousands that will be released eventually, it continues to have a dramatic impact on non-distressed "normal" residential property values.
With the current HVCC (Home Valuation Code of Conduct) rules and regulations regarding appraisals and home value calculations, appraisers continue to be under an intense pressure to not "over inflate" the properties' value. Those HVCC rules and regulations that went into effect two years ago are still causing serious ripple effects in today’s marketplace.
In reality what we see happening now is very few/none of the appraisers seem to want to set the new high sale comp in a neighborhood. The buyer and the seller may have mutually agreed on a price that was $20,000 higher than what the appraiser determined the value to be. However, if the only comparable sales were from "distressed" properties (short sales, foreclosures, etc.), they brought the overall value in lower.
If this trend continues, how will property values ever increase if appraisers continue to be pressured to not set the new high sale comp in a neighborhood, even when it is the best home in the neighborhood? And whatever happened to rule that the fair market price is determined by what a buyer is willing to pay?