I will agree with you. Since the title of my own article is “Changes in Appraising Standards Can Affect Housing Prices”, I really should agree with you, since it was my original point. Not sure how I got sidetracked. Thanks for taking me back to square one.

How is financing a “false influence”? Available financing directly influences what real estate will sell for. There’s nothing “false” about it. A property, by definition, will sell for *exactly* what the market determines it will sell for. If financing institutions aren’t willing to lend xx% of appraised value, then one of exactly four things happens:

– the original buyer makes up the difference
– another buyer comes along
– the seller takes the place off the market
– the seller lowers their price.

Don’t confuse the market price with the appraised price. The latter is only an estimate of the former, and is by no means definitive.

Also keep in mind that if it wasn’t for the easy, cheap money over the last five years (historically low interest rates, 100% financing options, interest-only loans & option ARMs), this real estate boom would have likely never happened. Further note that if the availability of cheap & easy financing goes away, the buyers will disappear, and the market will swiftly adjust prices downward.

Vist the beaches of L.A. where Cash is King, and you will quickly see a market that rises and falls with what “the market will REALLY bear” without regard to false influences, like financing. It is no coincidence that housing prices rise and fall differently in areas where people are not entirely dependent on financing.

And we DO have those segments in every marketplace, including Seattle.

All the buyer needs is the small increment of difference in cash between sale price and appraised value…many will do that for the right property. “Must appraise” clauses are relatively recent clauses and can be stricken from the contract.

Ummm, if the house can’t sell for a certain price, then the market can’t bear that price. Seems pretty simple to me. Don’t blame the banks for tightening up on lending standards, it is after all their money.

An appraisal for a specific property should come back with the same value for every prospective buyer. Real estate involves many more qualitative components than the pricing of capital market assets, but in an ideal world the appraisal should be the same.

Borrower risk influences the banks calculation of the loan terms offered to the borrower such as down payment, note rate, loan term, pre paid interest, etc.

I will agree with your comment in some markets involving less ethical professionals. Banks coerce appraisers to make the number so the borrower can acquire the property. It usually involves high capital growth markets and collusion between the lender, agent, and appraiser. San Diego and Portland have been in the news. When a borrower defaults on the loan the State and Federal authorities may conduct an audit involving the bank, broker, agent, and appraiser.

Cheers,
Michael P. Lindekugel
Financial Analyst
RE/MAX Commercial
TEAM REBA – RE/MAX Metro Realty, Inc

Too many people think an appraisal is the be all end all of “inherent value”, and don’t appreciate that a property can appraise differently depending on the “borrow risk” of the individual purchasing the property.

Someone with 50% down, an 820 credit score and loan ratios of 20/25 may get an appraisal at full sale price. Another with zero down, stacked costs, a credit score of 620 and ratios of 34/43 may find that the property “does not appraise”. Same property and same price.

Many don’t want to believe that…but it is true.

housing prices are influenced by the buyer’s ability to acquire financing, but most of the influence is price pressure from buyer demand in market of short supply. Some buyers will pay cash or acquire a smaller loan negating the impact of a low appraisal influencing bank financing.

In North Platte, NE and the surrounding counties, it is very common for the appraisal to come back 10-15% less than the contract price. Buyers routinely pony up a down payment of 30%. It happens to be a common practice in a boom and bust market.

Cheers,
Michael P. Lindekugel
Financial Analyst
RE/MAX Commercial
TEAM REBA – RE/MAX Metro Realty, Inc

This year, however, I’ve yet to have an appraisal issue (he said as he desperately searched for a mainstay to scratch). In fact, I’ve found it amazing just how many appraisals come in for the sales price or just slightly (under $1K above.)

When the seller receives multiple offers that push the price well over the asking price and well over the comps, “what the market will bear” equals the most a buyer is willing to pay. If one or more of the buyers has all, or a significant portion of the purchase price in cash, then what the market will bear is free of external influences such as the appraisal.

Before you think that is not a “here and now” comment, within the last 48 hours this has happened on a property where I represented a buyer client. We were bid out to the tune of $125,000 over asking price on a house priced at less then a million dollars. The property was not underpriced based on the comps. So much for a slowing market…depends on the house.

We are waiting to see what will happen come appraisal time, but it is our understanding that there is a significant cash downpayment involved. If the lender is only providing 50% of the cash needed to close, it is unlikely that they will refuse to fund 50% of the sale price, as it is still less than 80% of the supportable value.

I think the buyer who did this was ill advised for many reasons, but all it takes to change an appraiser’s view of price, is three crazy buyers with enough cash to close.

If a lender was willing to loan me two million dollars, interest-free, for three hundred years, I’d be able to buy 90% of the properties out there. Oddly enough, no bank would do that. As a potential buyer, my market of available homes is determined primarily by the amount of money a lender is willing to loan me, not by my personal determination that house X is worth $Y.