Welp… rates shot higher today.
This is one more reminder that the markets have already priced in the Fed’s impending rate cuts. And that waiting for rates to fall further is often costly.
Quiz: Are We More Likely to See Low Appraisals in Very Hot Markets or Softening/Declining Markets?
And the answer is… both!
We see low appraisals in very hot markets because offers are often much higher than any of the comparable sales in the area. During COVID, for example, we’d see offers all the time that were as much as $300,000 over all of the closed comparable sales in the neighborhood, making it impossible for those appraisals to come in at contract price.
Declining markets can go both ways from an appraisal perspective. If the market is slowly declining, the higher-priced comps that sold in a slightly stronger market 4 months earlier can actually make appraising easier (as long as there are not more-recent lower-priced comps to contend with). But, if a market is declining more rapidly and appraisers are aware of it, they will focus more heavily on market trends, and more recent comps (what we see happen often now).
Yesterday’s Blog: We’re Seeing Lots of Low Appraisals; Here Are Your Options
I blogged yesterday about buyers’ options when they have a low appraisal. And a buddy of mine, who owned a mortgage company for years, responded and said, “I hope your team is discussing appraisal gap strategies with all your clients up front?”
And – we definitely used to, but we got out of the habit because we had a “Goldilocks Appraisal Environment” (not too hot/not too cold) for too long.
BUT – we’re back!
Our Appraisal Desk Is Happy to Review Comps
We are going to discuss the potential for a low appraisal with clients more often now – IF our agents want us to.
We often ask agents, though, if they think an appraisal might be an issue – and we’ll hear something like this: “no concerns at all…”
What we discover, though, is that agents are sometimes unable to conduct a comparable sales analysis as extensive as ours.
Agents also often want to just ignore “inconvenient comps” – but appraisers can no longer do that: Why Appraisers Can’t “Ignore” Bad Comps.
Agents also often correlate to comps appraisers can’t use: Comps Appraisers Can and CANNOT Use.
So, I am again encouraging buyers and agents alike to ask our Appraisal Desk to do a more extensive comparable sales analysis up front.
Why Discussing Appraisal Gap Strategies Upfront Is So Effective
When we do discuss appraisal gap strategies upfront, we’ve discovered it to be extremely effective for several reasons:
- It sets expectations for clients and prevents disappointment.
- It gives us an excuse to educate clients about the appraisal process (and how low appraisals don’t always mean someone is over-paying) upfront.
- It’s a reminder to both agents and borrowers that smart lenders, with a strong appraisal department, are both experts and advocates.
- It enables transactions to move forward much more quickly and efficiently if an appraisal comes in low.
