Bidding war, prices and values

[J Grant]

Soon as marekt cools this thread will be irrelevant. But we are not there yet ( though I see a bit of thawing )

Does a bidding war produce a price affected by undue stimulus ? What is that price compared to - what the price would be without that undue stimulus. Just as in trying to analyze if a concession or creative financing affected price, ask what would the price be without it.

A bidding war produces a highest price as winner . After we develop the appraisal, we can know if that highest price is credibly supported or not. In cases where there is lack of credible appraisal support for a price, we are not telling a borrower not to pay that price. We are telling a lender client our OMV so they can set a LTV % based on the OMV.

What happens in the deal is not our concern ( though clients and parties try to make it so ). The savvy RE agents are using contract clauses to handle it . But I see only 40-50% ( aprox) contracts with an appraisal clause of buyer will pay X above the OMV, the rest of the contracts, seems the RE agent can not find a buyer to sign such a clause. And of course not every sale is a bidding war sale, some are just normal offers, though in a short days on market.

We have a severe supply and demand at work in some areas creating the market conditions which can end up in an individual sale as a price affected by undue stimulus. Or, just a high price that is not affected by undue stimulus. It becomes high price compared to what, ( the appraisal ).

In a declining price market with over supply of inventory, sellers will accept low sale prices they would not otherwise accept. I a low supply market, due to pressure to out bid or out pay the competition, buyers will make high price offers they would not otherwise make.

 

[RSW]

I have been arguing that same point for a few months now. I've brought it up in several CE classes and the instructors are saying it is the market. I don't know if I agree with that. Low interest rates, people moving in from other states, low inventory, and COVID all appear to be effecting the market.

 

[J Grant]

I have been arguing that same point for a few months now. I've brought it up in several CE classes and the instructors are saying it is the market. I don't know if I agree with that. Low interest rates, people moving in from other states, low inventory, and COVID all appear to be effecting the market.

Exactly. All the above is effecting the market and affecting prices. One of the effects is low housing inventory. How it plays out in price on any one individual transaction is the question in the MV definition terms applied which includes a price unaffected by undue stimulus.

If the instructors are rote or not actively appraising their answers might not be relevant. Some just want to stick to the coursework and not get involved.

 

[J Grant]

We’re at risk of a house price crash because a rigged market means private developers don’t build enough

UK but has parallels to USA. (just an article of interest p I recognize it is not our job to correct housing markets for those who accuse it ) ) However, the result of appraisals can affect prices ,as does every other activity in RE including lender policies adn sales tactics of RE agents. If we opine OMV we get one result, if we opine price opinion we get another result ( though they can at times have same $ number )

 

[Artemis Fowl]

I have been arguing that same point for a few months now. I've brought it up in several CE classes and the instructors are saying it is the market. I don't know if I agree with that. Low interest rates, people moving in from other states, low inventory, and COVID all appear to be effecting the market.

Are you appraising the market or are you appraising something competing within that market?

 

[ucbruin]

From start to finish....
From A to Z....
From soup to nuts....

No one in this cycle of residential property chain knows the value of a property....
NO ONE....

In a typical market the buyer has an escape clause-p/s says "must appraise at or above" contract....
In this market the buyer has no escape clause....

 

[J Grant]

From start to finish....
From A to Z....
From soup to nuts....

No one in this cycle of residential property chain knows the value of a property....
NO ONE....

In a typical market the buyer has an escape clause-p/s says "must appraise at or above" contract....
In this market the buyer has no escape clause....

Not true...in this market, what makes it interesting, is some buyers "know " they are paying above MV and chose to do it anyway, whith their own cash. (those who waive an appraisal contingency or agree to put down X $ over the appraisal value )

However, in my market area, that represents only about 40% -50% of the contracts (( rough estimate ). Which means, 50 % of buyers are not willing to pay above appraisal MV to get a property, and in those contacts with clauses, 25% e buyer agrees to pay 10k (example )above and 25% agrees to waive appraisal and pay the full price regardless.

So to put even this crazy market in perspective, only 25% of buyers ( in my area ) are willing to pay any high price regardless of how far from a MV - 25% are willing to pay a moderate amount above, and 50% of buyers want to pay what they hope is a MV price if they are using financing .

Also we need to remember that in a bidding war where highest offer wins, if there were 10 offers and only 1 winner, then 9 other serious buyers did not think it was property worth that winning highest price.

 

[ucbruin]

Not true...in this market, what makes it interesting, is some buyers "know " they are paying above MV and chose to do it anyway, whith their own cash. (those who waive an appraisal contingency or agree to put down X $ over the appraisal value )

However, in my market area, that represents only about 40% -50% of the contracts (( rough estimate ). Which means, 50 % of buyers are not willing to pay above appraisal MV to get a property, and in those contacts with clauses, 25% e buyer agrees to pay 10k (example )above and 25% agrees to waive appraisal and pay the full price regardless.

So to put even this crazy market in perspective, only 25% of buyers ( in my area ) are willing to pay any high price regardless of how far from a MV - 25% are willing to pay a moderate amount above, and 50% of buyers want to pay what they hope is a MV price if they are using financing .

Also we need to remember that in a bidding war where highest offer wins, if there were 10 offers and only 1 winner, then 9 other serious buyers did not think it was property worth that winning highest price.

The point I was making is NO ONE knows the value of the property in this cycle....
Agents will tell you that they list way below in order to create a bidding war, but please even they are surprised by the above list price bids....
Granted I'm not accepting a large volume of assignments but I have complete several purchase appraisals in the past 6+ months as most of us have....
And the agent's don't appear surprised when I appraise below contract price (because when I set the appointment I suggest to them that they provide me sales to review-hint, hint, hint)....

"Also we need to remember that in a bidding war where highest offer wins, if there were 10 offers and only 1 winner, then 9 other serious buyers did not think it was property worth that winning highest price."

The winner could be smart or stupid or lucky or a combination of all 3....
Also the highest priced bid is not necessarily the winner....
The winner could be a high price with no contingencies, all cash, no home inspection, no appraisal, definitely not FHA....

If you believe you are the ONE....
The One who really knows the value of each purchase appraisal you complete....
Then great....

 

[J Grant]

If you believe you are the ONE....
The One who really knows the value of each purchase appraisal you complete....
Then great....

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.

 

[Terrel L. Shields]

es a bidding war produce a price affected by undue stimulus ?

For years appraisers have said an "auction" isn't really a market sale....but bidding is exactly the definition of an auction. So many appraisers have been wrong for years or we have to believe bidding wars are "market".