Are properties really selling over market value?

[Meandering]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

You get what you pay for.

 

[The Warrior Monk]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

IMHO, it's two pronged. Some buyers are paying to much for certain properties, and some appraisers aren't reflecting the actual market conditions. In fact, there are appraisers in the general market area I live that aren't even using market adjustments at all!

Market analysis matters now. I'm seeing various parts of the market moving at different rates. For example, the very high end of the market appears to be moving at a lower pace than the lower price range; that's simply a function of supply versus demand differences in those markets.

 

[J Grant]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

Well that is about my ratio now ! Balanced out by aprox 40 % of sale contracts either waiving appraisal or a clause buyer will pay 10k (or similar ) over the appraisal value if lower than SC price.

Thoughts - it happens when a sale price is not supported by the adjusted comps, even after making a market condition adjustment. And not for lack of trying. I spend extra time if coming in "low" - but at a certain point, it is what it is.

The RE agent CMA's they give buyers ( and me ) to support the high prices consist usually of very superior properties. A buyer can thus be not well informed or advised. Some buyers are from out of town buyign signt unseen. FL is a weird area... million dollar new luxury houses blocks away from mediocre older houses. But the RE agents show the million dollar price tags to the buyer of a mediocre house who gets misled into thinking they are getting a good deal, when they are in fact vastly over paying. Some out of area buyers, everything here looks cheap to them so they can over pay.

That said, some areas of SFL were under priced for years so a higher threshold of price can be a market correction.

I can report I am seeing signs of market softening. A slow down of orders ( just this week, ) a few cancellation of deals, more listings coming on MLS, a few getting price reductions and not snapped up in a day. Still seeing very high price offers on some property but also seeing signs of some softening too.

 

[J Grant]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

We don't tell borrower what to pay .. .(we provide client with opinion of MV)

So if 40% of contracts come in lower, what is stopping those buyers from putting in their own cash to make up the difference to meet sale price ?

 

[Alsie35]

IMHO, it's two pronged. Some buyers are paying to much for certain properties, and some appraisers aren't reflecting the actual market conditions. In fact, there are appraisers in the general market area I live that aren't even using market adjustments at all!

Market analysis matters now. I'm seeing various parts of the market moving at different rates. For example, the very high end of the market appears to be moving at a lower pace than the lower price range; that's simply a function of supply versus demand differences in those markets.

Absolutely - I would just add that it is DOUBLY important now not to restrict your market data pull to an area that is too small (thus resulting in a dearth of reliable data). That may have made comp picking easier when the market was stable, but in this market we have to be careful not to "miss the forest for the trees". More data will produce more reliable trend analyses. Every time.

 

[The Warrior Monk]

I'm trying to be REALLY careful with my comp selection. Fortunately, we're a year into this, so there is at least some type of historical trend this point. It was brutal when when we were coming out of complete lockdown, when there was an instant change in the supply/demand balance, and a quantum leap in prices.

 

[TerryRohrer]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

Without access to sales data, it is hard to generalize. Out here in the sparsely populated areas, we thankfully are not seeing market conditions reported elsewhere, although some appraisers rely on the drama reported on the local news as their market analysis. But, earlier this year, when it seemed we were joining the fray, I completed an assignment where about 25% of the 20 sales in the grid stood out (higher) compared to the others after all had been adjusted to the subject for differences, including market conditions. I dug deep and was able to determine that in most of those instances, the buyers were from out of town, so were not knowledgeable of local markets, and were probably relying on market knowledge from where they had come. But, more importantly, if 25% of the data suggests one level of value and the remainder suggests a lower value, I think the most probable price is supported by the latter. While the exuberance is tapering off here, despite essentially no inventory of active listings, my primary concern has been where that balance shifts. Your example, I think, is right on the edge. I don't find the fact that 40% are concluding values below the contract price useful by itself (for example, how much below is important...some lag is clearly expected from reliance on closed sales), but over time some of those have to close so appraised values should climbing at roughly the same rate as closed sale prices are rising.

On the other hand, if the methodology followed by those appraisers compares to what I observe, and am told by local appraisers, with 3 closed sales selected prior to inspecting the subject and done, then the results, compared to what they would be from well-completed analysis, probably resemble the pattern formed by a shotgun aimed at the wall. What are the thoughts on that from your perspective?

 

[The Warrior Monk]

Just for fun, some appraisers weren't using time adjustments with these stats:

https://www.elliman.com/resources/siteresources/commonresources/static%20pages/images/corporate-resources/q3_2020/hamptons-q3_2020.pdf

 

[J Grant]

In a certain Florida market almost 40% of appraisal reports are currently expressing value opinions below the contracted purchase price. Thoughts on that??

If it helps your understanding of Florida , in my area ( Palm Beach County ) an alarming number of properties I see in my comp or subject research are showing on public records as delinquent on taxes. Property taxes have skyrocketed here due to rise in prices. Some people it seems either can 't or don't want to pay them. Not sure what it means but I have been seeing it more often than used to. Delinguent taxes and tax certificates. If you have realist public records search maybe start looking for it.

Homeowner insurance also very high due to storms ...imo the insurance companies take advantage but point is, a lot of buyers get swayed by a mortgage lender quote of low payments and get sticker shock when find out real costs of owning.

It even happened to me ,...these mortgage lenders can be very slick. When I bought my place 1.5 years ago mortgage lender good faith estimate a nice low monthly payment. I find out LATER when the loan was sold he did not escrow in the taxes or insurance. I ended up owing a double tax bill this year. I could afford it but what about those who cant?

 

[George Hatch]

The 2 roles are not mutually exclusive.

"Gatekeeping" the rationality will consist not only developing but also imposing the appraiser's judgement on the actions of all these market participants. Judging the actual actions of those buyers and sellers writ large. Picking winners and excluding the losers. Acting with a bias that, quite honestly, is based on a predetermined conclusion.

That isn't part of the Prime Directive of a MV opinion.

Now that's not to say an appraiser cannot or even should not comment on the sustainability of a trend or where the pricing fits in with local incomes or past pricing. But as far as picking comps in order to indicate to the dominant trend in the market goes, "what's sustainable" isn't part of that math.

For example, if I wanted to tell the lender that I don't think the prices that I'm observing in the market will hold I could just say so without it affecting my comp selection.

The highest priced home ever sold through the MLS in this area prior to the current RE cycle was a 2005 sale of a then-new home for $600,000. The median pricing at that time was $405,000, which at the time amounted to 9.8x the median household income. Since then the top pricing declined to $340k in 2011 with a subsequent rebound starting in 2012. ​

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More recently, the high sale was in 06/2021 at $720,000, with the current median at $570k, this amounts to 7.9x median household income. The 2020 median was $500k which was 7.0x median household income. IN MY OPINION, the current annual rate of increase of the median pricing of 12%/year is not sustainable over the long term. However, it's unknown when or if the current trend will flatten or reverse. ​

There. You just informed the reader of where the current pricing is in relation to the incomes and conveyed your opinion about the uncertainty of the current value trend. If they proceed with maxing out the LTV based on your current appraised value but suffer a loss later on it won't be because you somehow obscured what's going on in the market. If anything, you basically warned them of their risks and they went ahead and made that deal anyway.