Over the next few months, many sellers will have their hearts broken. This will be primarily self-inflicted but much of it enabled by collaborating real estate agents. The hurt will come as a result of the positive real estate news splashed across the headlines. Sellers are already putting on rose colored glasses, bumping their list prices and finding many agents willing to champion their cause.
Reality however, bites; and it bites hard. While there may be some merit to reports of an improving market, it needs to kept in context and most importantly, data at the local level must be considered before national reports.
Sellers must understand – and responsible agents will hopefully stress – that any purchase price can be placed on a sales contract, the challenge is getting that contract through the appraisal and underwriting phase. Enter the big, biting dog called Reality; and it’s not the appraiser that is doing the biting, it’s the underwriting process. Pounding and berating the appraisal process is pointless; appraisers care about one thing, complying with underwriting requirements. They are tasked with providing an impartial and supported opinion of value. They are not there to validate a purchase agreement or to set market value; they simply prepare their report based upon the current industry requirements.
We may be in an improving market, but remember that appraisals employ closed sales. Appraisers will use closed sales up to a year prior when writing their report. If prices for the spring market are in fact rising, the challenge then is to find justification with comparables that may not demonstrate that. Unless underwriting requirements loosen a bit to reflect this rising market, the spring season may be one filled with consternation. The solution isn’t clearly apparent but just as appraisers reflected declining markets for years; a first step might be to note slightly increasing values if the data can be clearly found; perhaps by adding a bit more reliability to pending and even realistically priced listings. Underwriting policies and lenders must adjust and allow the appraisers to do their job if appreciation can be supported.
Real estate agents play a major role in keeping the market moving forward. The best agents will look at a potential listing as an appraiser will, will brief the seller with that data and explain the appraisal process. Most importantly, they will ensure that the seller sees, understands and uses the applicable data; they will not act as enablers and over list a home simply to get a listing. The very common agent tactic of telling sellers what they want to hear is very damaging to a property and the market in general. Extended marketing times, repeated price reductions and stale listings do not paint a picture of a robust, improving market. Agents need to truthfully answer the “what is my home worth?” question.
After many depressed years there are signs of improvement in most real estate markets. Professional agents are critical to fostering this recovery; they play a central role representing clients in what is likely the largest financial transaction that they will ever be involved in. Tough love for sellers may be needed, but agents applying that professionalism, knowledge and experience, this will benefit not only the seller but the market in general. The spring sales will set the comparable tables for the summer and fall market; let’s do it correctly.
About the author: Hank Miller is a full time Associate Broker and Certified Appraiser in Atlanta. He is known as much for his attention to detail as he is for his candor. Visit www.hankmillerteam.com for all things real estate.