I feel like I should be watching reruns of Lost – Season 1 and listening to Boulevard of Broken Dreams on my playlist (except I didn’t have a playlist back then). It’s like 2005 all over again, with buyers bidding 10 and even 20 percent over asking, zero contingencies and multi-million dollar cash offers all over the place.
Do we have a county wide state of amnesia? Does anyone remember 2006, 2007 or even last month? You know, a time when the buyer was paying a price that the market could easily support because they already had comps to prove it, not one they hoped would just get them the house and they’d worry about paying for it later.
Buyers and sellers are inclined to act emotionally where their home is involved. I’ve always held the belief that the agents, lenders and appraisers are the necessary voice of reason, keeping offers in check and making sure buyers are truly “qualified”. How does that play out in today’s world of high demand and low supply, particularly when it comes to appraisals? How does an appraiser bring in a value when all the recent comps have closed significantly lower but there were 5 offers over asking within the first week? Perhaps the question really is SHOULD an appraiser be able to bring in a significantly higher value in that situation? Let me be clear, I think a 2 or 3 % increase is easily justifiable, I’m talking about 10 and 20 % increases here.
According to one appraiser I talked to they use the simple fact that so many people ARE bidding over asking for the property as an indicator of where the market is. Hmm, how do lenders feel about that? After all, buyers are emotional and in my opinion it’s easier to over-bid for a property when you’re in competition, there’s nothing else out there and it’s only another $100 per month on your mortgage payment in order to get into a home now.
If we’re to avoid another crisis like the last one wouldn’t it be more prudent for the appraisers to have some stricter guidelines about how much a “changing market” can affect the appraisal value? If the appraisal comes in at a lower value based on recent sales then a buyer is more than welcome to bring in their own cash to close the deal. If they are neither able nor willing to do that then perhaps they’re not REALLY qualified to buy this house or the supportable market value (as opposed to the anticipated market value) hasn’t quite got there yet. Either way, appraising a house at a value way higher simply because there’s no inventory competing with the house “at this precise time” seems to me to be a sure sign of history repeating itself.
What do you think?