I think new appraisal standards are going to lower home prices everywhere.
My last two listings appraised below their negotiated purchase price. Both listings sold quickly and had two offers. My most recent listing was a nicely updated 2,600 square foot 1944 Centerville Home priced at $239,000. Its assessed tax value in November was $247,000. My CMA going back with comparables sold during the last year easily supported $265,000. Our negotiated purchase price was $239,000 + closing costs. We also had an offer at $230,000, but my clients accepted the full price offer instead..... Then, a few days before closing the appraisal comes back with a value of $232,000.
The problem was that the VA appraisal was only able to use comparables going back three months. This winter, Real Estate was dead slow in Northern Utah. There were only a few moderately comparable comparables of houses that were substantially inferior, but that's all the appraiser was allowed to use to support a value for the lender. Now does a lender really care about a value created by three somewhat comparable sold properties, or do they want to know what a property is worth, what it will really sell for?
As it turned out, my client had to reduce the price a bit, we agents sacrificed our commissions a bit, and the buyer settled for a thousand less in closing costs to make make the deal work. After the concessions my clients would have been better off if they accepted the $230,000 cash offer. If only they knew their house wouldn't have appraised at $239,000.
If all appraisals can only go back three months, this could soon become a downward spiraling trend. Home sales are picking up in Utah, but are still much slower than last year. When the next nearby house sells, my clients home will be used as a comparable. Their appraisal won't be able to support their market value either because all the recent comparables were lower.
In my opinion, appraisers need to consider market value more when determining appraised value. Market value is not determined solely by how much three recently sold properties went for, market value is what an able buyer is willing to pay for a property. If several different people are willing to pay more than $232,000 for a house, then market value is probably more than $232,000.
Your logic is slightly flawed. If the market in the past 3 months has been "dead" then only the most recent comparables and analysis of the market within the past 3 months would give you the true market value, but if the homes used were inferior appropriate adjustments should have been made. CMA's by Realtors, with all due respect, are not even slightly reflective of value (easily supporting $265 for a house selling for $239? If this is the case, and CMA's are even remotely relevant, your clients just gave away $26,000). Also, concessions and financing terms need to be considered (VA appraisers are some of the most conservative, due to the fact that a VA loan is so high risk). The fact that the clients would have netted more from the $230,000 due to concessions is a very telling piece of the puzzle. The most able buyer "the cash offer" would be the most indicative of the "true market value" would he not? Point being, the actions of a VA loan buyer within the marketplace is not going to reflect the actions of a typical "conventional loan" buyer, and the actions are not indicative of the true market.
This all being said, you are absolutely right. Lenders are dictating standards to appraisers that are affecting home values and it is not going to get better any time soon.
Not to demean appraisers and the work they do, but the "adjustments" you refer too can't really be accurately made when the appraisal hasn't even seen the comparable properties. How can you adjust value for modern kitchen upgrades, when you don't know what ammenities the comparable kitchen had? Appraisers rarely spend more than 30 minutes examining the subject property, most of that time is spent merely measuring the property. Almost all their data used for the adjustments comes from the MLS data.... What measures does the appraiser use to determine that one of the comparables was purchased for $20,000 less than market value? What are accurate adjustments for a house built in 1944 when their aren't any comparables that were built within a ten year period?
Can't disagree. I guess using good, experienced, educated appraisers is the answer instead of just who can get it done "cheapest and fastest" as seems to be the case in most situations.