An Emerging Market
In Columbus, Ohio, it can be a sellers market today. Inventory is low and buyers are vying for the best properties. Some fortunate sellers are rejoicing with multiple offers. However, when it comes time for the Appraisal, the celebrations are dashed when they review what they get back… The bank does not support the agreed upon price between buyers and sellers.
Why is this happening? Why aren’t prices just jumping with the demand and the banks happily following suit with this renewed Real Estate market?
As much as I like to say that the law of supply and demand is alive and well, there should be controls placed on those prices to keep the market from swinging the other way out of control. One thing you need to understand about Appraisals is that they are supposed to be grounded on like properties – apples to apples is the terminology I like to use.
So if you have a 2 Story, 4 Bedroom, 2 Full Bath, 1 Half Bath, 2200 square foot home, the Appraiser needs to find sales within the subdivision and/or radius that are comparable to the subject property. Like it or not; it’s how it is done. Only IF they cannot find apples to apples comparables can they start deviating from the subject property and then branching out to the other similar types of homes within the subject area to understand the sales history.
These are necessary controls to keep the market aligned and from growing too rapidly. In an emerging market – one that is starting to grow, small increases in value are tolerated. However, huge increases like $30,000 increases from sale prices 2 years ago are going to have a difficult time passing Appraisal unless there are substantial sales to back it up.