Housing inventory has plummeted to 1.75 to 2.25 months supply for Simi Valley. This super tight market condition has real estate agents excited, home sellers excited and is creating stressed out buyers. While sellers have become more reluctant to put their homes on the market over the last couple months; the same pool of buyers during this time frame, having fewer homes to choose from, are not ready to drive prices up and the Appraisal Value is one of the key reasons that will keep this rally in check.
Simi Valley saw in the market run up between 2000 and 2007, Appraisals that were brought in over value all the time; According to home appraisers in Houston so much that part of the responsibility of the meltdown was related to those jacked-up appraisals. Dodd-Frank reigned in the appraisers and in some cases went too far, but as indicated by Well’s Fargo’s 2012 outlook on housing, with 2 million homes in serious default and with the large amount of homes sold as short sales, underwriting guidelines for purchase loans will single out any attempt to jack-up prices with appraisals again.
Another factor for the Simi Valley housing market is that we have seen on average a 10% (even more in some tracts) decline in selling price over the last year and those declines were continuing in to February of this year. The same Wells Fargo report is projects an addition 6% decline in pricing for 2012. Since that is an over all average for the country we need to remember markets are local and sometimes hyper-local. Could we see some bounce up in pricing for Simi Valley home sales in April and May? It is likely, but more likely for homes in top condition. Homes with deferred maintenance and lacking core components will continue to significantly lag their updated and upgraded counter parts. Long gone are the days where (as in 2005) buyers ignored significant issues and competed for average homes in bidding wars.
Sellers facing the current market conditions, trying to get the highest price possible for their home, now face a tougher appraisal process and more cautious buyers. Home Sellers trying to get a handle on an appraisal value for their home should consider the following:
1. Sites like Zillow and Trulia cannot give you an accurate value, the algorithms that are used to create their estimated values are limited by many factors that will make an accurate assessment difficult. These values can be a starting point, but only an appraisal attached to a purchase contract will give a justifiable value.
2. Draw a one mile radius around your home. That is the limit. Homes in that radius are going to be used as the bench mark for your home.
3. Age, Size, Bedrooms and Baths – An appraiser cannot skip over a comp. If your home is 3 bedrooms, 40 years old and 1500 square feet and there are 15 closed sales in your one mile radius with similar characteristics, the appraiser cannot skip over those, pick a 4 bedroom and adjust your home value.
4. 90 days may be as far as the underwriter will allow the appraiser to go out for closed sales. That number in the past was 6 months and in some cases may still be 4 months, but again if there are enough homes with similar characteristics in the one mile radius the appraiser is going to use the most recent sales and older comps are given less weight in determining value.
5. Your home may have upgrades. Your home may be the nicest in the tract, but increases for those upgrades are not granted liberally by appraisers and the value will certainly not be moved up by the replacement value. You will receive a favorable appraisal compared to the surrounding homes, but not an unrealistic appraisal.
A tight inventory tilts the advantage in negotiations to the Seller, but the Appraisal process is going to be the bottleneck on any properties with multiple offers. Sure we will see a few properties where the buyer will bring in additional money over the appraised value, but as we are seeing in the majority of these multiple offers buyers are responding to counter offers cautiously.
[…] The Appraisal Bottleneck […]