In our industry, appraisals are always a hot topic. So let’s talk about it.
We’re going to go over what’s going on with them and give you some insight on how to prepare yourself for this market.
First, let’s tackle the elephant in the room.
Why are appraisals taking so long?
Appraisals can come back in as little as a week or take up to a month to be completed.
The predominant reason why an appraisal can take so long boils down to a supply and demand issue. The supply right now with regards to appraiser availability versus the demand of how many appraisals need to be completed is way outpaced.
To drive this point home, Core Logic just came out with a study that shows 19% of all homes didn’t appraise. That’s almost double the numbers from 2019 and 2020.
So what does this mean?
Everything comes down to the fact that there are more buyers in the market than there are sellers. Also, more and more sellers are refinancing their loans with record-low interest rates. Overall, many sellers are looking at it and saying that it makes more sense to stay than to sell.
If there is less inventory, there are more buyers than there are sellers which is inherently driving the price up.
One of the reasons behind why there are more buyers in the market now, in comparison to earlier this year, was the uncertainty around the pandemic. For example, sellers couldn’t have anyone come in and tour properties which disrupts the sales process. So with home buying getting pushed back by 6 to 9 months, there is built-up demand.
Now, let’s talk about what’s contributing to the fact that 19% of homes are under appraising and how a realtor establishes value, ie. list price versus what a buyer is willing to offer and how it ties into the methodology that an appraiser uses.
The appraiser has to use data based on comparable properties that have been sold because they cannot simply use comparative properties that have already been listed. When an appraiser goes to complete a report, they’re looking at a previous sale which means that data isn’t always recent or current.
The market is moving so fast that sales prices are outpacing the appraisal data that is available. So appraisers need to start bracketing their value. They generally look at the high side, then the low side, and try to formulate an opinion on the value that is in line with the evidence they are able to find.
So that may include a few comps in the neighborhood and one or two outside of the neighborhood. When you look at the appraisal, you’ll see everything from the condition of the property, to square footage, to bedroom and bathroom count, to above grade and below grade and more.
And remember, not all square footage is created equal.
You have to look at the entire property and comparative properties across a spectrum of variables. Appraisers consider all of those variables and adjust it based on that particular property. No two appraisals are created equal and at the end of the day, it’s an opinion of the value. And appraisers support that opinion with the information they’re provided.
While appraisals are putting stress on buyers, it is important to understand this is a very real aspect of our current market. We won’t see a quick resolution to this because it will take time for the supply to catch up with the demand.
But, we can be proactive and come up with a strategy ahead of time if it looks like the sales price you needed to win the deal might be pushing the value.
If you have any additional questions about starting your home buying process, you can contact me by emailing (firstname.lastname@example.org) or finding me on Instagram (@the.mortgage.mentor).