After spending what seemed like an eternity in economic purgatory, the housing sector appears to be on a sustainable path to recovery. Buyer activity has increased along side property values. The recent trend is encouraging, to say the least. However, there are those who find the increasing price of houses to be the bane of their existence. More specifically, swift increases in home prices can make appraisals much more difficult to conduct.
Of particular concern, however, are the prices resulting from an increasingly difficult appraisal process. Any inaccuracies may skew the market. The rate in which houses are increasing in value makes it difficult for appraisers to pinpoint a price. Subsequently, by the time the house has been appraised, market values may have already changed.
According to Jonathan Miller, president of the Miller Samuel Real Estate Appraisers, “appraisers are facing an increasing number of accusations from buyers and brokers that valuations are coming in too low and under the agreed upon sales price in housing markets where prices have jumped rapidly in recent months.” Complaints are not necessarily the result of poor appraisals, but of the rapidly changing market conditions.
California, in particular, has seen some of its markets increase by as much as 25 percent in the past year. The Sunshine State hosts four of the top five least affordable housing markets, as a result. Witnessing similar increases, Miami is up nearly 20 percent from this time last year. Prices are increasing so fast that appraisals haven’t caught up to reflect the rise.
About a quarter of real estate transactions have had “some sort of problem with appraisals,” says Jed Smith, managing director of quantitative research at the National Association of Realtors (NAR).
“In a rising market, appraisals tend to lag the market because appraisals are looking backward and the market is looking forward,” Smith told Investor’s Business Daily.