Are Houses Actually Appraising for These Prices?

Question

Hi, everyone. First time poster.

We're shopping for a home in Los Angeles and are a little dumbstruck by this market. We'll find a house with a listing price of, let's say, $890,000, run it through the automated appraisal services (like Bank of America, Chase, etc.) and see its value estimated around $900,000-ish. But here's the thing: the place will then sell for $1.05M.

Are houses actually appraising for these values?

Our realtor is suggesting we waive our appraisal contingency and get comfortable offering $100k over the estimated appraisal value. I'm like, "Doesn't that mean we'll pay the difference up front?" But she seems confident that these appraisals rarely come in low.

I have my doubts.

Mike Dymski · Answer

With all the stimulus, debt forbearance, added unemployment benefits, loose monetary policy, and isolationist policies, the government way overcooked the market and it has created whacky asset prices and inflation.  We've had a lot of government "solutions" for nonexistent problems...and now have real problems with tougher solutions.

Christian Harris · Answer

Ha, now I see how we got in this mess :)

Eric James · Answer

Put it this way. I've recently had 2 appraisers call me to say they were having a hard time appraising the properties I was refinancing. They asked me how much I had paid for the property and what I had invested in rehab. Let's just say I don't have the greatest of faith in appraisers.

Steve Vaughan · Answer

Good, and yes, that means you will front the difference. If she's so confident it won't appraise low, why waive the contingency?  I sold a house April 11.  The appraisal came in low by the exact amount of the buyer agent commission.   I sold by owner so funny that. It was actually just exercising an option to buy from last year.  Buyers agents aren't free. Are duplexes a better value in your market?  See if you can tolerate a different property type until the froth settles. Then keep the plex when you move up later.

Good luck.  I can't imagine buying retail with a sales person representing me in this market.  You paying $100k over benefits who? Think about that.

Marcus Auerbach · Answer

We have fewer issues with appraisals now than we had years ago. If you have 5 offers for a similar price, thats is the very definition of fair market value!

Dillon Dale · Answer

@Christian Harris that's becoming common for buyers to bridge the appraisal gap in cash. It's becoming more common in my relatively small market, I can imagine it's very prevalent in LA. Run your numbers and if the deal makes sense, then go for it. Stick to your fundamentals and you'll be fine

Christian Harris · Answer

Speaking of, the "A" word does appear after your name . . .

:)

Patrick Britton · Answer

good lord.  the question was about appraisers and not a single appraiser has posted a reply.  lots of opinions from real estate agents though!

Paul Camuto · Answer

Forget the appraisals for your offer. Comps (what homes have sold for are all that matter). That is market price. Is this an investment or your primary home?

Gene Livingston · Answer

Appraisal may work a bit different than you assume. If a house sells for $1mm, that's the market value....even if it seems crazy. A freshly completed transaction is the single best data point an appraiser has to work with; especially right now with generally low transaction volumes in many markets. And, appraisers also have to look at price trends, which are also up.

The main thing to understand is that appraisers ARE having a hard time now because they have very few fresh closings to look at from which to use as comparables.

Are Houses Actually Appraising for These Prices?

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