And for my next trick……
People sometimes wonder how we appraisers do our jobs.
Why is one property worth more than another? How did an appraisal get completed and come in at a purchase price when nothing around it has closed for that much?
Is it magic?
Of course not.
We use actual formulas and techniques to arrive at our credible values. I do have to admit, however, there are some appraisals that leave me scratching my head. I suppose those are the ones that indeed use magic.
Black Magic, that is.
Lets get back to that question, “How did that one come in at the purchase price, when nothing around it has closed for that much?”
Let’s face it. This market is really out of control. Buyers face stiff competition for homes and nearly every purchase we are doing these days has multiple offers and a contract price over list price Sometimes very substantially so. Even if it’s out of control, an Appraiser has the duty to reflect what is going on in the market at that moment.
What technique or science does an Appraiser use when the list price is $419,000 and the contract price is $525,000? (BTW, This is a real world example from last week)
Call the listing agents of those pending sales that compete with the property being appraised. That is a critical technique and skill in this market. In fact, I call all the Realtors on my pending sales before I start writing up my appraisal. That gives me the maximum time to get that info I need about the contract price back before I need to send out the appraisal. I also send emails out to the agents. Some agents respond faster to an email than a phone call in this age of smartphones.
The listing agents are in the same boat as the appraisers. They have buyers fighting to get their contract offer accepted. There are up to a couple dozen competing buyers for each property. The contract prices of the pending sales in the subject’s property’s neighborhood are likely bid up as high or higher than the subject.
Listing agents know that in this market, the sale you are calling them about may be critical to getting theirs closed. They need your property to appraise at its contract price so they can use it as a sale when their appraisal comes up.
The contract price of a pending sale is the most critical piece of market information in this over heated market we are currently experiencing. Appraisers should not forget to ask the agent how many offers they had. Many times sellers are not taking the highest offer. This is also great information for the reader of your appraisal. It helps them to understand what type of market you are in.
In a market of rapid appreciation like we are experiencing now, the most current and most up-to-date data is the contract price of pending sales. That is one of the main factors in determining time adjustments for our sales that closed even just a month or two ago. Knowing the contract price of your pending sales can be the difference between a credible appraisal and a non-credible appraisal.
To all those Realtors out there that are cooperative with Appraisers when we ask what your contract price is, I thank you. You make my job much easier.