January 18, 2019
Home Appraisals—How They Affect, and Reflect, the Market
The home appraisal is a valuable tool used by lenders to determine the amount of money they are willing to loan a buyer for purchase. As such, it is performed by a licensed professional who has become adept at determining the fair market value for a home based on a number of criteria, and who offers their professional opinion to that effect. Sometimes, in the case that an offer on a house comes in well above the later-assessed fair market value, a buyer can use this assessment to re-negotiate the purchase price, if they decide not to cancel the contract altogether—especially if their offer is dependent on securing a loan. This is a dispiriting circumstance for sellers, but acts as a motivator to not list a home too high in the first instance.
One of the determining factors at play in a professional estimation of fair market value is “comps”—a comparison of the prices at which similar properties in a home’s area have sold in recent days. This is in part a function of the almost-organic nature of the market, the powers of supply and demand at work in the minds of the buying and selling public.
When supply is diminished by high demand, the amount a seller may fetch for a house from multiple offers increases. In such a scenario, it’s likely that buyers will enter the market who are not as dependent upon receiving the home’s total value in a loan, who have more money to put down up front, and who are more motivated to do so, regardless of the appraiser’s determination. Once this happens, houses begin to sell for more. This drives up the comps, and increases the likelihood an assessor will find his determinations of area home values rising in turn. We know this as a “seller’s market.” This has been the market situation in many places during the past few years, when prices were rising steadily, and at a fairly rapid pace—but with the result of driving down the percentage of first-time buyers and younger buyers, who are naturally more dependent on full-price loans. Whether we are seeing the beginnings of a correction in this market force remains to be seen.
We here at Topouzis & Associates, P.C. are experienced at title searches, and we are supported in supplying title insurance by numerous underwriters. Contact us if you’re getting into a new property—whether at a price backed by the assessor or for slightly more if you simply must have that home—and we’ll put our vast experience to work for you, ensuring clear sailing through the closing process and beyond.