If you have sold a house recently in a depressed market than you are certainly aware of the current issue of appraisals. In a down market home values drop and people sell their home below market value, appraisals are supposed to show/prove the worth/value of your home but if the homes around you are selling below market, this could mean trouble for you. It is easy logic, but in order for an appraisal to take place someone comes out and inspects your home then, here's the kicker, they compare it to homes in the area that have recently sold that are similar to your home (comparables). The problem is these comparables have been selling below market value in order to get the sale done. The consequence is that your home is now taking a beating because the 'comparables', because they were sold below market value, now quality by association, your home will be appraised at a lower value.
What is going on here is a never ending cycle of bringing down home values. The reason this keeps happening is before an offer is made a buyer gets an appraisal on the home and the appraisal comes in at $500,000 but the homeowner knows it is actually valued at $600,000. The buyer knows that market says it is only worth $500,000 and will not make an offer higher than the appraisal. This starts the cycle. Now that the home dropped in value by $100,000, the next home will be brought down in value, and so on and so forth. Currently there is no end to the cycle, the only way I see this ending is if buyers start paying over the appraised value or there is a second regulation in place to 'appraise' homes without bringing down the home values.
*for a similar article visit INMAN.com
Matt Ullrich
303.941.2452.cell
303.415.2251.office
ullrich@boulderco.com
RE/MAX of Boulder
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