The Trend Towards Truer Appraisals of Home Values
Posted by Matt Barker on Monday, November 17, 2008 at 8:31 PM
By Matt Barker / November 17, 2008
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When it comes to pricing your home for the market, many factors are taken into account. One of these will be “comps”: the comparable sales of other properties in your areas. Used as benchmarks in home real estate appraisals, buyers and sellers never used to be concerned about “comps” when real estate values were on the upswing.
In this soft market, mortgage lenders recently have begun making these benchmarks a big deal. Because of the rapid decline in home values, instead of accepting sales of comparable properties that closed six to 12 months ago like in years past, lenders and mortgage investors now demand that appraisers include only the most recent comparable home sales, preferably using closings from the last 90 days to support their valuations.
Mortgage lenders and investors are also pushing for more comprehensive data on local listings, pending sales and listing-price to selling-price ratios before they agree to fund a mortgage for pretty much any amount.
As a result, more and more home sales are being complicated or stalled entirely as buyers demand that sellers lower their prices to reflect the lower loan amounts their lender was willing to provide. Prices are even being renegotiated after contracts have been signed. In some ways it can help the buyer by fetching a lower price, but if the sellers don’t agree to the new terms it can bring an end to talks. When lenders and sellers wouldn’t budge, transactions that had been a sure thing have fallen through.
Some advocates say the tougher standards are producing valuations that are much more accurate to short-term changes in local price shifts. Opponents, on the other hand, say that the demands have contributed to valuations lower than the price on the sales contract, putting transactions in jeopardy. Additionally, if sales are slow in some places, there may not be enough comparable closings within 90 days for an accurate measure.
In this soft market, mortgage lenders recently have begun making these benchmarks a big deal. Because of the rapid decline in home values, instead of accepting sales of comparable properties that closed six to 12 months ago like in years past, lenders and mortgage investors now demand that appraisers include only the most recent comparable home sales, preferably using closings from the last 90 days to support their valuations.
Mortgage lenders and investors are also pushing for more comprehensive data on local listings, pending sales and listing-price to selling-price ratios before they agree to fund a mortgage for pretty much any amount.
As a result, more and more home sales are being complicated or stalled entirely as buyers demand that sellers lower their prices to reflect the lower loan amounts their lender was willing to provide. Prices are even being renegotiated after contracts have been signed. In some ways it can help the buyer by fetching a lower price, but if the sellers don’t agree to the new terms it can bring an end to talks. When lenders and sellers wouldn’t budge, transactions that had been a sure thing have fallen through.
Some advocates say the tougher standards are producing valuations that are much more accurate to short-term changes in local price shifts. Opponents, on the other hand, say that the demands have contributed to valuations lower than the price on the sales contract, putting transactions in jeopardy. Additionally, if sales are slow in some places, there may not be enough comparable closings within 90 days for an accurate measure.
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