There has always been a saying in Real Estate "Buyers set
the market". After all a home is only worth what someone will pay for
it, right?
In a recent article put out by Bloomberg "Home-price Recovery May be Undermined by Appraisal (Update 1)" buyers are not the ones setting the market.
Especially when they purchase using Fannie Mae or Freddie Mac loan packages. According to Bloomberg there
have been multiple deals that have crashed and burned due to appraisals
coming in lower than the agreed upon sales price. With the new laws
set into place as of May 1, 2009 there are even tougher standers to be
upheld. A watch dog of sorts for the mortgage company and appraiser
relationships.
"So what did the appraisal come in at?" is a
question that I have heard many times over from a prospective buyer.
The fact of the matter is that most appraisers (unless there is a
latent defect with the home) bring the appraisal in at or slightly
above the contract price. Why do appraisers need to know the contract
price before they complete the appraisal?
I am guessing that if they want more business from that
mortgage company they will bring it in at a value so that the deal
won't fall apart. But who are they serving ultimately? The
mortgage company that will be stuck with a property that can't be sold
for what they bought it for, the owners who now can't sell because the
home value was inflated?
I have also heard the saying "you have to sell this home 3 times" meaning that you need to catch the attention of the buyer, their mortgage company and appraiser before you can purchase the home.
Of course, if you have a bunch of money to put down you can
alleviate this problem, the fact of the matter is most people don't.
So tell me what you think!
Are you telling your clients that buyers or appraisers are setting the market today?