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Bidding war, prices and values

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
I don't believe I am the ONE, lol..like some omniscient value guru,

I do believe if a client hires me and I am competent, I am the appraiser who develops a credibly supported OMV for the client use in an appraisal.
The role of perception and value is easier when evaluating commercial property. Lets say a piece of commercial property in downtown Miami genuinely worth more than a similar-sized building in Davie ? It will cost more, but that doesn’t mean it has more value to a specific investor or tenant. However, since Miami is a more prestigious location, it’s perceived as being more valuable and, therefore, is more expensive. Only the buyer and a set of economic and need-based considerations can come up with a good answer. By researching the fundamentals of a property and applying them to your situation, it’s possible to find investments that are more valuable in the real world than their market prices suggest. Now we shift to residential that if being purchased for owner occupancy which in general has no economic benefits outside of writing off mortgage interest and taxes. Value in residential and price aren’t the same because changes in perception can alter prices and sometimes in very short periods of time. In my market area where I am currently living Zillow ( don't laugh i my neighborhood its spot on +/-3% ) it shows my home went up by almost 5% in may and on another one I own in a different are at about 4% now believe me nothing has changed in these two neighborhood in years. No new companies moving in and no announcements that Disney is buying up land or houses around us. In fact if I was selling and told a potential buyer the truth I would have to list more negatives than positives. Since Covid-19 we have experienced more crime- more auto accidents more traffic and at much higher speeds and numerous other less desirable things happening. The only thing I can get anyone to agree on is 2.5% rates and low inventory are causing the herd mentality. Almost all say a 4% rate in these high cost areas would be a fatal heard shot. So most buyers perception is a 2.5% to 3% rate =Value. When in a year or two we look back suddenly all the talking heads will be saying the lo rates were undue stimulus because they were not normal and typical and were used as an-inducement by the Feds to keep markets from declining in a potential up and coming high unemployment environment. NOTE: 2.5% rates are not undue stimulus because undue stimulus can rarely be measured until the event has run full circle. In 2005 when everyone was getting NINJA loans that could not be called undue stimulus because everyone was on a level playing field yet 3 years later the experts and talking heads suddenly declared those loans as undue stimulus. NARs Chief economist said it was stimulus but not undue stimulus. Uncle Billy says I don't know but it sure felt good.


Exiting Covid-19
appears to have altered many peoples perceptions. Irrational exuberance which is unfounded market optimism that lacks a real foundation of fundamental valuation, but instead rests on psychological factors. In my opinion the last 6 months in SO CA fits right into irrational exuberance. We are not seeing this in Commercial because-no matter how Goofy you are you have to be able to secure good long term leases and some buildings will either have to be repurposed or raised. In residential the buyer and appraiser are anchoring their opinion of market value based on Sales Prices and low 2.5% rates . Many will argue they don't appraise sales prices but when you ask them if those 6- Comparables they used were closed and recorded Sales Prices or Values ? They get that glassy eyed look and many have no idea. The truth is in extremely heated markets appraisals are worthless pieces of paper and only used to facilitate a mortgage. Angry-Cat says 2.5% mortgages are stimulus today and when SO CA markets sober up all th talking heads will add the word Undue to Stimulus.
 

Fernando

Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
In my market I rarely see appraisal clauses in which buyer willing to buy by certain amount over the winning bid.
How will that work if multiple offers having that clause? It's a nightmare or more work for listing agent to respond to each offer.
Lazy agents would just accept the highest bid.
That's what I notice. Buyers are aware that in a bidding war, only the highest survive. So they put their best offer.
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
In my market I rarely see appraisal clauses in which buyer willing to buy by certain amount over the winning bid.
How will that work if multiple offers having that clause? It's a nightmare or more work for listing agent to respond to each offer.
Lazy agents would just accept the highest bid.
That's what I notice. Buyers are aware that in a bidding war, only the highest survive. So they put their best offer.
The agents do not respond to each offer-they and the seller choose the best one and then send out an-E-mail to all the others telling them there offer was not accepted.
 

Fernando

Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
There were times when agent would call me and ask if I can match the highest offered price.
Because of my clean offer, agents like me and want me to be the winning bidder.
The agent could have sent multiple counter offers but it can be messy. The winning bid can be behind the scenes for easy acceptance.
 

glenn walker

Elite Member
Joined
Oct 11, 2006
Professional Status
Certified Residential Appraiser
State
California
Y
There were times when agent would call me and ask if I can match the highest offered price.
Because of my clean offer, agents like me and want me to be the winning bidder.
The agent could have sent multiple counter offers but it can be messy. The winning bid can be behind the scenes for easy acceptance.
Yes Fernando--Its not the winning bid-its who brings the most cash to the table :)
 

Steelers74

Sophomore Member
Joined
Jul 27, 2010
Professional Status
Certified Residential Appraiser
State
Ohio
I've noticed a troubling issue in some areas around here regarding condition differences/adjustments of comparables. I have run across some instances where the bidding wars between buyers have driven up sale prices of dated homes to the same or similar prices as the completely updated homes in the neighborhood. I'm finding it difficult to reconcile that 2 similar homes with one having a 1970s or 80s interior and one having been completely updated throughout are selling for same prices in some areas. Its a bit concerning but that's the market today.
 

J Grant

Thread Starter
Elite Member
Joined
Dec 9, 2003
Professional Status
Certified Residential Appraiser
State
Florida
I've noticed a troubling issue in some areas around here regarding condition differences/adjustments of comparables. I have run across some instances where the bidding wars between buyers have driven up sale prices of dated homes to the same or similar prices as the completely updated homes in the neighborhood. I'm finding it difficult to reconcile that 2 similar homes with one having a 1970s or 80s interior and one having been completely updated throughout are selling for same prices in some areas. Its a bit concerning but that's the market today.
same here. It is what it is. If we adjust a superior comp down for upgrades, and the resulting OMV is below their SC price, the price is an over payment.


The buyer is free to make their SC price by putting down more cash, just as I am free to provide my opinion of market value to the client.
 

Fernando

Senior Member
Joined
Nov 7, 2016
Professional Status
Certified Residential Appraiser
State
California
In past year, prices were stable and started to come up noticeably this year like the stock market.
I always felt my home hasn't gone up as much maybe being an overimprovement with larger size lot.
Today, I came to realization with recent sales prices are going up and it's a nice feeling.
May be it's due to inflation. If it is, I don't mind inflation.
 
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