Are properties really selling over market value?

[residentialguy]

I never said that.

We can infer from rising prices that more stimulus affects those prices upward, due to supply, demand etc. So it is a given we are working with higher prices . But, as appraisers, we are tasked with an opinion of market value ( as defined ) with a price unaffected by undue stimulus a caveat of the " as defined " MV definition.

The assumption in the MV definition is, was this property's individual price affected by undue stimulus ? ( not was an entire market affected by undue stimulus )

Since the MV definition is meant to apply in all markets, apply it now too, difference is prices of the comps are higher - our market analysis explains why

If there is a personal undo stimulus on that contract that is different than the market, then yes I agree. You know I always have. But there are many appraisers out there that just do not have the guts to appropriately adjust for the date of sale. They're like "I would never pay this much for these houses" ...or "This housing market is going to crash if they keep up with this crazy pace." Or my fav. "I don't have a closed historical sale that high" lol

 

[The Warrior Monk]

Seems to be the most probable price of the typical buyer/seller in the open market to me.

By definition, this is the case.

Some people argue that the market is affected by "undue stimulus." However, that's a misapplication of the phrase, and contradictory in and of itself. Undue stimulus is transactional, not market wide. Stimulus can certainly be market wide, but not undue stimulus.

 

[residentialguy]

By definition, this is the case.

Some people argue that the market is affected by "undue stimulus." However, that's a misapplication of the phrase, and contradictory in and of itself. Undue stimulus is transactional, not market wide. Stimulus can certainly be market wide, but not undue stimulus.

Exactly!!
I would argue that even something extreme like when MT St Helen's erupted.. or Chernobyl nuclear plant melt down. Housing took an immediate plunge... but those plunged prices were then the new market value. It wasn't an individual case of undue stimulus of the owner or seller, it was stimulus on all the typical home owning buyers & sellers there. You can't adjust for that 100% market wide stimulus as if it's not there.

 

[The Warrior Monk]

Housing took an immediate plunge... but those plunged prices were then the new market value.

When major, marketwide events occur, obviously the appraiser should discuss those events for clarification.

 

[residentialguy]

When major, marketwide events occur, obviously the appraiser should discuss those events for clarification.

100%
Back in the last bubble of 2008, I always inserted a warning to the lender quoting experts stating that this Market cannot continue rising and will crash. This is the market value as of the effective date but this may not be the value next month.
I would strongly advise all appraisers to load your reports with a ton of Cya's

 

[residentialguy]

I just searched the forum and found this older post a few years back. Even then I was putting cya's in my reports.

MARKET VOLATILITY
This report is based upon the effective date and not a future value. This is not an attempt to predict the future, rather a disclosure of market warning signs for the lender to consider. Currently the market appears strong and optimistic in many ways; However, the appraiser suggests that the lender approach this optimistic appearance with caution as many aspects of the current housing market is very reminiscent of the years just prior to the 2008 housing collapse.

National median family home prices are 32 percent higher than inflation. That's similar to 2005, when they were 35 percent overvalued. The Housing Bellwether Barometer is an index of home builders and mortgage companies. In 2017, it skyrocketed like it did in 2004 and 2005. That's according to its creator, Stack Financial Management, who used it to predict the 2008 financial crisis. Home prices in Denver, Houston, Miami, and Washington, D.C. are at least 10 percent higher than sustainable levels, according to CoreLogic. Warning signs are seen in the stocks, as well. Overall, the S&P 500’s index of home builders increased 75 percent last year, about four times as much as the stock market as a whole.

In 2017, 35 percent of Fannie Mae's loans required mortgage insurance. That's about the level in 2006. In some ways, these loans are worse. Fannie and Freddie lowered their definition of subprime from 660 to 620. That means the banks are no longer calling borrowers with scores between 620 and 660 subprime. The Fed has projected three rate increases for this year, which raises the risk that today’s highly inflated housing market will again end badly. A rate rise from just 4 to 5 percent for a 30-year loan would drive up monthly mortgage costs by 12 percent. For buyers, that’s on top of the annual median price gain, reported at 7% for existing homes in November, according to CoreLogic. By comparison, disposable income, or earnings adjusted for taxes and inflation, increased just 1.9 percent, according to data from the Bureau of Economic Analysis.

 

[Alsie35]

I just searched the forum and found this older post a few years back. Even then I was putting cya's in my reports.

MARKET VOLATILITY
This report is based upon the effective date and not a future value. This is not an attempt to predict the future, rather a disclosure of market warning signs for the lender to consider. Currently the market appears strong and optimistic in many ways; However, the appraiser suggests that the lender approach this optimistic appearance with caution as many aspects of the current housing market is very reminiscent of the years just prior to the 2008 housing collapse.

National median family home prices are 32 percent higher than inflation. That's similar to 2005, when they were 35 percent overvalued. The Housing Bellwether Barometer is an index of home builders and mortgage companies. In 2017, it skyrocketed like it did in 2004 and 2005. That's according to its creator, Stack Financial Management, who used it to predict the 2008 financial crisis. Home prices in Denver, Houston, Miami, and Washington, D.C. are at least 10 percent higher than sustainable levels, according to CoreLogic. Warning signs are seen in the stocks, as well. Overall, the S&P 500’s index of home builders increased 75 percent last year, about four times as much as the stock market as a whole.

In 2017, 35 percent of Fannie Mae's loans required mortgage insurance. That's about the level in 2006. In some ways, these loans are worse. Fannie and Freddie lowered their definition of subprime from 660 to 620. That means the banks are no longer calling borrowers with scores between 620 and 660 subprime. The Fed has projected three rate increases for this year, which raises the risk that today’s highly inflated housing market will again end badly. A rate rise from just 4 to 5 percent for a 30-year loan would drive up monthly mortgage costs by 12 percent. For buyers, that’s on top of the annual median price gain, reported at 7% for existing homes in November, according to CoreLogic. By comparison, disposable income, or earnings adjusted for taxes and inflation, increased just 1.9 percent, according to data from the Bureau of Economic Analysis.

I would think that the first paragraph would suffice. These paragraphs basically state what should be obvious from publicly available market data. The lender doesn't need us to give them a lecture on this - their risk deparments should be crunching the numbers for them, that is their job.

Put another way - do you really think we need this level of legalese in our reports on simple mortgage appraisals? Did lenders go after appraisers who simply did their job the last time there was a downturn? Wouldn't your E&O cover you if you were sued?

Otherwise I agree with everything you have posted on this thread re: market value being what it is at any given moment in time. I have nothing to add, you've made all the points that have occurred to me about this.

 

[Fernando]

100%
Back in the last bubble of 2008, I always inserted a warning to the lender quoting experts stating that this Market cannot continue rising and will crash. This is the market value as of the effective date but this may not be the value next month.
I would strongly advise all appraisers to load your reports with a ton of Cya's

How can you predict the market will crash.
No one unless you're a time traveler can predict the future.
We can only state what's happening now.

 

[residentialguy]

How can you predict the market will crash.
No one unless you're a time traveler can predict the future.
We can only state what's happening now.

Do you do review work at an AMC?

MARKET VOLATILITY
This report is based upon the effective date and not a future value. This is not an attempt to predict the future, rather a disclosure of market warning signs for the lender to consider.

 

[Fernando]

Do you do review work at an AMC?

MARKET VOLATILITY
This report is based upon the effective date and not a future value. This is not an attempt to predict the future, rather a disclosure of market warning signs for the lender to consider.

No, I do not like to do review work.
I don't like to judge my fellow appraisers ... otherwise, I'll rip them apart.