Larry Challis
Remember Joni Mitchell’s lyrics of “We’re captive on a carousel of time. We go round and round and round in the circle game.”? We are in the middle of another major real estate cycle. Arguably this one started back in the uncertain days following 9/11. Since 2001 we have ridden the merry go round to the record highs of early 2007, gut wrenching lows up until last spring and now, a full year of increasing, sometimes wildly appreciating home values. The most common complaint that lenders hear is that bank appraisals are not keeping up with the multiple offer, low listing inventory realities of the current market. It’s easy to understand why all cash offers are attractive to sellers wary of waiting for the often lower than offered price bank appraisal. Why don’t the bank appraisals reflect the fair market values? The simple answer to a complex problem is that they can’t. The regulations make it next to impossible to stay up with the sales market. The real estate melt down of the recent past has radically changed the lending world. Secondary market underwriting guidelines, including how the value of collateral is determined, are far more regulated and conservative than our pre melt down existence. REALTORS® determine the competitive market analysis (CMA) of a listing by using factors such as demand (multiple offers, days on the market),recent sales (including all cash offers), and supply(limited listing inventory) among other factors. Lenders, representing investors who will be buying the loans, have learned that buying frenzy and inventory shortages can be short lived when the home value needs to cover a 15-30 year loan. They provide appraisers with strict, limiting guidelines on what is allowable when determining value so that companies like the House valuation in Brisbane can follow them. Sometimes, the value of a house can be leveraged by renovating or remodeling some areas of it. This would prove to be lucrative business if one does so. Remodeling right from the living room to bathroom remodeling tulsa, ok can be done easily to increase the scales of the house. The market realities used for the CMA above are not the most important factors for lender’s appraisal. Lender appraisals give recent foreclosures, short sales and estate sales of comparable properties equal weight to cash or equity sales. Little or no importance is given to the fact that recent sales had multiple offers or were sold after a short time on the market. The lender is more concerned with trying to determine what the value of the property will be in the next few years rather than just what it might sell for today. Houston appraisers can be trusted in this respect. Our topic at the May 2nd Real Estate Financial and Affiliate Forum will be Real Estate Appraisals vs. CMAs. (9:00-10:30am at SAR) We will provide a panel of seasoned real estate appraisers beside experienced REALTORS® who will help us all begin to understand how the two methods of determining value (appraisals vs. CMAs) are vastly different and similar. It will be a lively and informative presentation. Short high-content updates from various affiliated services representatives will also be given. The meetings are short fun and done. See you there!