When Will Prices Go Back Up? – And how do appraisals affect it?

January 16, 2012

The Brookshires grocery store down the street from my house in Forney TX sells a gallon of milk for $3.79.  A small cup of coffee at the McDonalds cost $1.60.  The going rate for a Hunter 5-minute ceiling fan at Lowes is $99.  A 42” Sony HDTV with internet apps sells for $899 at Costco.

So how does my grocery store, McDonalds, Lowes and Costco know what these products are worth?  The answer is very simple.  The market tells them so.  No one would pay $7.00 for a gallon of milk, or $900 for a ceiling fan.

It’s a universally accepted economic truth that value is determined by the market place.  A product or service is worth what someone is willing to pay for it.  That is, unless it’s residential real estate.  If you’ve bought or sold a home in the past 24 months then you know exactly what I’m talking about.

Very little, if any, consideration is given to what the market is willing to pay for your property.  Chances are, the residential real estate appraiser randomly selected to determine the value of your home isn’t too interested in what the offer price is – or the fact that there were multiple offers.  The buyer’s mortgage underwriter, who is charged with reviewing the appraisal, certainly doesn’t care.  The mortgage underwriter’s job is to protect their own backside from originating a bad loan.

The single most important criteria, and in many cases the ONLY criteria, an appraiser and mortgage underwriter use to determine residential property value is historical data.  Which begs the question – if the single most important criteria, and in many cases, the ONLY criteria an appraiser and mortgage under use to determine residential property value is historical data THEN HOW ON EARTH DO PROPERTY VALUES EVER GO UP?

Well, they don’t, at least not the in the Dallas metro housing market.

On Monday, January 16th there were just over 30,000 active single family homes for sale on the Dallas Multiple Listing Database (North Texas Real Estate Information Services).  That’s about a 6 month supply.  To offer you some perspective, when things were at their worst here in 2007 there were more than 50,000 active listings and a 18 month supply.

If supply is low and demand is high we all know what is supposed to happen next.  Prices go up.  But that’s not happening here.  According to the stats from the NTREIS system, home values in my market area of Kaufman County have been hovering around $62 per square foot for the past 12 months.

There is no shortage of buyers or available credit.  The numbers tell us that.  It is clear that the reason home prices are not going up is because of low appraisals.

For what it’s worth, I don’t blame appraisers.  In most cases their hands are tied.  If the mortgage underwriter doesn’t like an appraiser’s valuation they’ll just require another appraisal be done. The appraisal process is subjective, unfair and extremely flawed.  But until something changes we all must deal with it.

The real estate in Forney has suffered greatly during this economic downturn.  There have been times when a home hits the market and goes under contract in less than a week for 100% or more to the list price.  When the appraisals roll around and the homes don’t make value the owner is faced with a tough choice.  Reduce the sales price and walk away with less money, or bring more money in some cases.  Or they must make the buyer fight the value, or pay the difference in cash.  As you can imagine it is not a great position to be in.

There are lots of factors to think about when selling your home.  The list price is key and with new homes for sale in Forney up and foreclosures in Forney still hitting the market you want to do your homework.  What is the market value of your home?  In other words, what would a buyer be willing to pay for it.  And what would the appraised value of my home be?  What is a bank willing to lend on it?  It is crazy that those numbers can be different but we see it all the time.  Sometimes the market is higher that the appraised value and sometimes the appraised value is higher than the market.  Just make sure that you don’t try to catch the wrong number because things can change overnight.

For more information on Forney Texas Real Estate values or any other area in Kaufman, Rockwall, or Van Zandt Counties or to find out what your home is worth today please give us a call or shoot us an email.info@forneytexasrealestate.com or call or text 214-929-8568 or 972-900-9087