Can appraisers use listings too or just sales?

One of the biggest complaints I hear and read about is that appraisers are only using the most recent sales instead of current listings. The thought is since the market is increasing, appraisers end up low-balling every appraisal because they don’t really (or cannot) use listings. Is that how it works?

listings vs sales in appraisals - by sacramento appraisal blog

Listings Show the Direction of the Market: First off, listings are important for any real estate market because they can help illustrate the trend of values. When listings are lower than the most recent sales, it probably indicates the market is declining, while higher listings show the market is likely increasing. If listings are priced similarly to recent sales, it shows values are probably stable. This is a basic real estate principle, but let’s be honest that sometimes appraisers clearly misinterpret this phenomenon. At the same time there are also many cases where properties are simply priced too high for the market. Maybe the owner or agent was too aggressive or didn’t pay close enough attention to neighborhood trends. Or maybe an investor picked the wrong “comps” when trying to flip a house. I’m not looking for a pity party for appraisers who got it wrong by any means, but let’s be realistic about other parties missing the market by incorrectly pricing a listing.

A Date of Sale Adjustment: Contrary to some opinions out there about appraisers NOT being able to consider listings, appraisers have what is called a Date of Sale adjustment which allows them to adjust for any value difference that has occurred since the comparable sales went into contract. For instance, if all listings are higher than the most recent sales and other metrics also show the market is increasing, appraisers can give an adjustment to each comparable based on how much the market has increased since the CONTRACT DATE (not the close of escrow) for each respective comparable sale. In short, it is a myth in real estate to believe appraisers cannot use current listings in a valuation. That’s simply not true.

date-of-sale-adjustment-by-Sacramento-Appraisal-Blog-2

Of course the real question is whether appraisers are giving these adjustments or not. This one “Date of Sale” adjustment or lack thereof can be the X-factor in an appraisal being accurate or not. If you feel the appraiser did not give an adjustment, you should dispute the appraisal and ask the appraiser in writing to explain why this adjustment was not given. You may want to ask why a Date of Sale adjustment was not given to comparable sales when listings seem to be priced higher. While you’re at it, make sure to review the appraisal and look for the most important things that really impact value.

Question: Any questions, stories or thoughts to share? Feel free to comment below.

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Comments

  1. says

    There’s always a certain amount of “price anticipation” AKA “fishing” that goes on when the market is moving. A seller doesn’t get a second chance to extract the value from a property once sold, so most are hesitant to price too low or at market….except in the cases of short sales. As a builder/developer or flipper, sometimes your anticipated sale date is almost a year off, and you have to decide how much of your budget can be used to polish and/or add amenities to the property to aid its sale.

    Sometimes adjacent sellers will convince themselves that they too have added those amenities and increased the value of their properties way beyond the normally anticipated price moves…. and move their price into the “wishful thinking” range aka “smokin’ crack” as you might hear in industry jargon.

  2. Carmichael_Jim says

    The listings vs. sales issue will be a moot point when the market stops going up. This article makes a powerful argument that the market will stop going up… well, today or tomorrow, if not yesterday. Housing affordability index is in free-fall! See

    http://soberlook.com/2013/09/a-housing-affordability-index-scenario.html

    It’s fairly obvious: if there’s no wage growth but home prices and rates go up at the same time, that trend logically has to be short-lived and unsustainable. Buyers get priced out.

    • says

      Thanks Jim. I appreciate the article too. Analyzing listings and sales is important in any market though, don’t you think? If values stop going up (for whatever reason), listings will likely be priced closer to the most recent sales (or lower if the market is declining). There are many metrics of course to pay attention too. In fact, a post I have coming out on Wednesday will talk about the layers of value in a real estate market. It’s never about just one metric such as median price or DOM or listings vs sales.

      We do need wage growth though. You are definitely right about that. It seems the local real estate market has been influenced upward by just about everything except for wage growth and the local economy.

      • Carmichael_Jim says

        I agree, looking at both listings and sales are important in any market. I meant that the complaints about sales values lagging listing prices will dry up if the market stops going up because then the spread between the two should narrow.

        The math is undeniable. Last year’s house at $300k and 3.5% is today $420k at 4.5%. Inventory’s going up as sellers try to capture the higher prices but the pool of buyers who can qualify has to be shrinking. Something’s got to give.

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