Are Houses Actually Appraising for These Prices?
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.
@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
Appraisers have a copy of the contract in hand. So they know what price to shoot for.
On the rare occasion it doesnt appraise, just switch lenders to get a new appraisal. (Assuming conventional financing)
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Quote from @Russell Brazil:
Appraisers have a copy of the contract in hand. So they know what price to shoot for.
Ha, now I see how we got in this mess :)
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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.
Quote from @Christian Harris:
Quote from @Russell Brazil:
Appraisers have a copy of the contract in hand. So they know what price to shoot for.
Ha, now I see how we got in this mess :)
Not really, or not entirely. There are often multiple high bids. Realtors can show those to the appraisers. If you have 3-5 all in the 1M range, that pretty well sets the market. In addition, the appraisers are seeing the same thing happening with other houses, so the market trend is pretty clear. When it is not clear then the appraisal will come in low and the buyer needs to cover the gap, if they can.
Those automated appraisal estimates are not using older comps. With the market changing so fast, six months can make a big difference.
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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!
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Quote from @Christian Harris:
Our realtor suggests 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.
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.
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Quote from @Steve Vaughan:
Quote from @Christian Harris:
Our realtor suggests 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.
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.
I think back to the late 80s in the SF bay area when this over bidding first started or at least it was the first time i saw it. the Real estate brokerages of the day would have the buyer sign a disclosure that the houses is listed for X and your paying Y out of your own free will.. Brokers did not want to get sued if market backed up and all of a sudden the person who over bid is sitting in a major negative equity position.
Quote from @Steve Vaughan:
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.
I'm right there with you, Steve, but here's the thing ... right now, $100k over listing is what everything is going for. And that generally puts you $150k over the AVM estimates. So, who does it benefit if we pay that? Us. Because it means we might actually win on of these ridiculous bidding wars.
Quote from @Christian Harris:
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.
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.
Quote from @Christian Harris:
Quote from @Steve Vaughan:
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.I'm right there with you, Steve, but here's the thing ... right now, $100k over listing is what everything is going for. And that generally puts you $150k over the AVM estimates. So, who does it benefit if we pay that? Us. Because it means we might actually win on of these ridiculous bidding wars.
Welcome to the real estate market. Unfortunately, buyers have set the standard and since lending is far more relaxed now, typically appraisers are going with the flow.
I have a investor friend who is a broker. If your looking for someone to negotiate for you, he’s a straight shooter.
Otherwise, expect the unexpected: the RE marker was suppose to correct when COVID came along. All the indicators were present, but the government forced its hand. And now we have tenants living for free, banks offering forbearance, tons of free money being passed out to people who don’t need it and people refinancing with triple digit cash outs.
Where things are headed is anybodies guess.
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.
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?
good lord. the question was about appraisers and not a single appraiser has posted a reply. lots of opinions from real estate agents though!
Quote from @Patrick Britton:
good lord. the question was about appraisers and not a single appraiser has posted a reply. lots of opinions from real estate agents though!
Speaking of, the "A" word does appear after your name . . .
:)