With the recession (I believe we actually had a depression not a recession) comes the law of unintended consequences!
Here is the deal. I want to hear your take on this!
Buyers are so used to price after price after price reductions and LOW, LOW sales prices that their perception of VALUE may be skewed and it may not be in their best interest.
Case in point. I appraised a home where the last sale in the same S/D was just a month prior for $125,000. Very similar style, appeal and quality home. The buyer really wanted to be in this development and there are NO other listings now available. They are willing to pay the same price for this home as the one that just sold (the one that sold however, is 600 square feet larger). The seller has no problem paying $125,000 for this home even if it is smaller, because there were no other homes in this price range that they liked and in the hey day of 2006 this home sold for $240,000. So $125,000 is ONE hell of a deal......or is it?
Based upon that most recent sale and a few others in neighboring developments the appraised value was UUGGHH dare I say $110,000. That most recent sale told the story on value and it was NOT a foreclosure sale either!
So the Realtor calls me to discuss value (how dare he...LOL) and we have a whole discussion about how this was the last home available, supply and demand issues, the home was better in THIS buyer's mind than any other they saw and they really wanted to be in that S/D.
Problem is this: While I totally understand supply and demand impact on value, the principles of substitution, etc. Based upon very recent sales, as well as some listings, this home was not worth $125,000. It was worth $125,000 tothis buyer, but does this buyer represent all buyers or the general populous of buyers out there?
Market value is what someone is willing to pay in an open market, working in their own best interest, they are knowledgeable and prudent and there is not any undue stimulus....BLAH, BLAH, BLAH.... So you may say hey this person is willing to pay $125,000. But here is the problem. Are they really knowledgeable about the comps out there? As appraisers we cannot make adjustments on perception, we can only make adjustments on real market data. If we can prove via DATA that perception does equate to a certain dollar figure...GREAT! But good luck on that approach to value!
The Realtor and I discussed about how appraising is an ART not a Science and in this case I should have been able to make an adjustment for the fact that supply is low, demand is high and even if sales don't support the value, PERCEPTION supports an upward adjustment.
The sad truth is if we adjusted on the "ART" of the profession or the perception of value without some SOLID numbers and analysis to back that adjustment up, the Underwriter is going to have a field day with our report!
I then wanted to remind the Realtor, Appraisers are here for the sole purpose of protecting the Lender when we are dealing with a Lender appraisal. We are their eyes and ears and that fact has not changed in all the years I have been appraising, with all the changes in this field. What if this lady purchased the home for $125,000 and God forbid she defaulted and then there were plenty of listings and sales in that same S/D available, all under $125,000! Now the Lender WILL lose money....So that is why it is imperative to provide a current, real and supportable value for the subject. If the lender today loaned $15,000 more in this case than the home is worth, who knows how much money they will lose down the road when they have to put it back on the market, especially in THIS market.
I will end with my favorite Line, that surprises many people still......
APPRAISER'S DO NOT DETERMINE MARKET VALUE FOR A PROPERTY! THE MARKET DOES! PERIOD!
APPRAISERS ANALYZE THE MARKET AND THEN THEY REPORT WHAT THEY FIND IN THE FORM OF AN OPINION OF VALUE FOR THE PROPERTY. WE ARE NOT SO POWERFUL AS TO DIRECT THE MARKET VALUES FOR ANY GIVEN AREA. THE MARKET DOES THAT ALL ON THEIR OWN. WE ARE JUST THE BEARER'S OF BAD NEWS SOMETIMES!
Let me hear from you and what you believe to be true! Times they are a Changing Daily!