Outside Expertise

For more than a decade I have been recommending that Sellers first, before contacting a Realtor, get the advice of a outside appraiser – and for the past decade I do not know of a single person who did what I advised, until the past year.

In the past seven months I have had four inquiries as to the name of an independent Appraiser. This is good news, because both Seller and Realtor have discernable personal interests in the home that they cannot erase, while an Appraiser has none

Further, if you use an Appraiser who is also used by lenders, you get foresight into what the Underwriters are telling the Appraisers as to the future market in the Lenders’ opinion, and everyone knows that the lender does not mark to market – they hedge to future markets.

Why does this matter? Because no matter what number a Buyer and Seller agree upon, the FINAL arbiter is the Lender. The Lender will appraise the home with one eye on the future. If the market in home prices is rising, he will let time cover any high price that the Buyer and Seller have agreed upon. In many markets I have seen, a $10,000 over-agreement be covered before the close of a 90 day escrow!

In this market, we have exactly the opposite. It is more likely that a Lender’s appraisal will be UNDER the agreed upon price, because the Buyer and Seller are working in the present with pretty good knowledge of where they stand. The lender will hedge his bets by appraising with an eye toward the future, and lending 80% of a lower appraisal.

This upsets the agreement between Buyer and Seller. With prices falling between a half a percent and a full percent each month, and no economic reason to see any change for at least six months (and then facing Winter markets), Sellers who do not want to face another year need to get ahead of the curve.

I just wish the foreclosures and short sales would stop, because that is what drives lower prices. All markets overcorrect, and this one certainly has. Every market harms some and helps some, and this one certainly has.