Our Social Media Manager recently noted a lot of comments on social media regarding appraisal issues – both low values and delays.
The conditions that foster these issues are worse than ever right now and I wanted to discuss a few reasons why.
LOW VALUES: WHEN SUMMER = SPRING
- Spring is usually the issue. Appraisers often have trouble supporting values during hot spring selling seasons b/c strong demand often pushes prices higher than the most recent sales, from a softer fall selling season, can support.
- Summer = spring this year. COVID put all of the spring buyers on hold only to see them all resurface this summer, creating the same excess-demand issues that we normally see in the spring.
- Low rates. Very low interest rates are further spurring demand for housing. In addition, they make buyers willing to pay even more b/c the lower rates make larger mortgages more affordable. This of course pushes prices up even higher, making valid comparable sales that much harder to find.
- Low inventory. Inventory is amazingly low in many of the markets in which we work for a variety of reasons, including the fact that the COVID-crisis seems to have encouraged many potential sellers to stay put. Low inventory not only drives up prices but it makes it much harder to find valid comparable sales.
- Move to suburbs. This is another significant factor behind the increase in prices; the COVID-crisis has spawned a mass exodus from urban to suburban locales and this too is further pushing up prices.
Long story short, or TLDR (in millennial-speak), if a house is listed for $750,000 and it sells for $1 million in a multiple bid situation, it is unlikely that there will be valid comparable sales from the last 3 to 6 months, when the market was weaker, to support that value.
DELAYS
There are many reasons behind the appraisal delays – here are a few:
- Refi boom. The demand for appraisers greatly exceeds supply right now, so delays will remain. One of the biggest reasons is the massive refi boom that is still taking place. If rates were not so low, refis (and refi appraisals) would be far fewer, leaving more than enough appraisers for purchases.
- Purchase boom. The appraiser shortage is only exacerbated by our current purchase boom, resulting from both low rates and pent up demand.
- Appraisers are older. This is something most people never consider, but many appraisers are older and more at risk from COVID. As a result, many refuse to appraise in certain areas or to do interior inspections. This of course further exacerbates the shortages.
- It ain’t easy. This is another factor that few people consider – it is very hard to become a fully licensed appraiser nowadays, as it requires substantial schooling and an immense amount of experience. People are reluctant to enter the field b/c of this and b/c of the potential that A.I. will render appraisals obsolete at some point. This too makes shortages more acute. As an aside, I think we will always need appraisers, as there are too many nuances that A.I. cannot account for.
Will the problem abate?
As the buying season cools off and as refis slow down a bit (something we are seeing now), we should see appraisal issues surface less often in metro areas at least.
In outlying areas though, the problem remains severe and will for some time. Some of our appraisers in rural California have 3-month backlogs. In Texas, we are getting quoted 2-3 week turn-times as well.
WHAT JVM IS DOING TO COMBAT THE ISSUE
As I remind readers often, we pay higher fees and very high “rush fees” (that we eat & do not pass on to our clients) to entice our appraisers to accept our orders over others.
We also maintain our own pool of appraisers who we know will do fast and good work.
This works btw. 😊
We still have appraisal issues from time to time, but we have far fewer than we ever did before we set up our own appraiser panel and started paying rush fees.
Jay Voorhees
Founder/Broker | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167
