Real estate sales in key Florida markets have risen as much as 10 percent in the last six months, which is more than they usually increase during an entire year when the market has been stable. Appraisals are based on previous sales, which is causing a problem in this fast changing market. With appraisals sometimes coming up significantly lower than a seller’s asking price, this has caused many deals to fall through and home sales to stop at times.
The problems are arising from appraisers using foreclosures and “short sales” as comparable homes in their valuations and when they are failing to take into account market conditions such as low inventory and bidding wars in many areas. Savvy appraisers no longer include distressed sales in their comps but occasionally we get an appraiser who allows them. In addition, many banks have increased their requirements to six comparable sales versus a previous requirement of only three, making the appraiser scramble for those extra comps.
Some appraisers are asserting that if the market is riddled with foreclosures then that is what is going to set the market. They feel that they are simply following the rule of thumb of evaluating what the majority of the sales are in a particular market. Therefore, if the majority of sales are foreclosures, that is what is going to be used for comparables in that market. As realtors, we find it very important during an appraisal to be certain the appraiser is taking the market condition into account. For example, The Purtee Team just sold a listing in a complex higher than any recent sales there. The buyer put an appraisal contingency as part of the contract. We went to the appraisal and showed that there were now limited listings available in this highly desirable community and that there were no active distressed sales left. He was able to go outside the community to justify the contract price.
With some appraisals coming in at 10 to 20 percent lower than an accepted offer sellers are hesitant to put their homes on the market or they are particularly open to cash offers that require no appraisal. Even buyers are skeptical wanting to be sure they got the best deal for the property they are purchasing. However, there are some actions that can be taken to combat a low appraisal. A seller can work with their agent to:
- Conduct research to back up your case for why the price was set for the property. Be sure this information is available for an appraiser to consider in his report.
- Request a new appraisal. There is a rebuttal system in order to challenge the information used in the appraiser’s report.
- Get an independent appraisal.
In today’s market, our recommendation is to be sure the appraisal is done early in case you have to fall back on any of the above actions. Just as when the market was in a downturn… appraisers have a difficult job. As realtors, it is important to be right there on the front line to support the contract price where necessary.
For more information: http://www.floridarealtors.org/NewsAndEvents/article.cfm?p=2&id=289406