I’ve priced many, many homes in my life. These homes have been big and they have been small, and the prices have been both mine and they have been set by others. These prices have varied from tens of thousands to handfuls of millions and some have been accurate while others have veered wide of the mark. Sellers always have the ultimate say in pricing, as they should, as it is, after all, their home and their money. I have turned down some sellers who sought to have their number assigned to their property, and when I have turned those listings down it has never been on account of thinking their price was too cheap. Lake Geneva is a unique market, where list prices can make little, if any, sense, and it should be obvious to you as a buyer that those prices are typically not set by the listing broker. If a price looks insane, thank a seller.
Even if sellers operate on emotion, as they almost always do, other times they fall back on a different, seemingly more reliable source: an appraisal. More precisely, an appraisal that they bought and paid for either out of curiosity or out of a requirement from a bank to either maintain an existing loan or obtain a new one. The appraisal process has been in disarray ever since Mr. Cuomo decided that banks shouldn’t really be able to talk to the appraiser whom they have hired. This seemed fair at the time. After all, if a bank can coerce the appraiser into a higher valuation, then the bank can lend the money and charge points and fees and then package the iffy loan into some larger bundle of similarly iffy mortgages and sell it to Goldman Sachs. If these parties were separated by a third party, Mr. Cuomo figured the appraisal and lending process would be, by the removal of possible bullying and back scratching, a fairer process that would protect the consumer. The implementation of this middle man through what was and is called the HVCC would save the ignorant public from the big bad banks and their appraiser henchmen.
What really happened is that the appraisal process grew unnecessarily complicated and riddled with potholes that obscured the path to a successful refinance or purchase. This perceived additional oversight was actually just another cog in the process that let appraisal decisions in Winnetka be made by some guy sitting at a desk in Santa Monica. That guy at that desk doesn’t see much of a difference between a location lying East of Sheridan or West of it, he sees only the 60093, so you can take your proposed refinance and sit on it. Nuances of local markets were lost in the shuffle of an underwriter’s desk, and loans were made more difficult to secure. The problem isn’t that appraiser’s were purposefully inflating numbers and now they can’t, the problem is that an appraisal that raises a question with a bank’s underwriter can no longer be solved by that underwriter discussing the issue directly with the appraiser. If a question must be asked, it must, most times, be asked through that guy at his desk in Santa Monica. Thanks Mr. Cuomo!
But the issue of the HVCC isn’t what I’m talking about today, even though I just talked about it. The issue today is the accuracy of most appraisals in determining actual market value. That brings me to this painful news- appraisals are not nearly as accurate in determining market value as is a market opinion from your neighborhood Realtor so please stop relying on these written opinions. I was going to say expert neighborhood Realtor, but I caught myself before I ended up appearing as a shill for the NAR. If an appraisal tells you your house is worth $700,000, that’s wonderful. I’m happy for you. I really am. It’s sweet, really, that $700,000 number. Precious almost. But it probably has very little bearing on what your property is actually worth. Appraisals seek to justify market value by looking at comps and looking at cost of replication and economic conditions. What an appraisal cannot do is judge the sentiment of a market in the way that a full time Realtor might be able to. If a house theoretically would be worth $700k, but as your broker I understand that similar properties haven’t been shown but twice since Haley’s Comet last made an appearance, chances are that $700k number is astronomical as that comet.
I enjoy seeing appraisals. I like to see how appraisers dissect comps in their statistical way. I enjoy the science behind a very subjective art. But I have also spent the last 15 years selling properties for far above and far below appraised values, and in that sales history I understand, as should you, that appraisals are nice indicators of value but that they cannot be relied upon as the sole indicator. If your property is in Lake Geneva, and you’re curious as to the value, just ask me. I’ll tell you. If you don’t like that number, which most people over the last four years don’t, we can argue about it some. It’ll be fun. It’s going to be 86 and sunny in Lake Geneva, and I now feel bad for boring you with appraisal talk. See you at the lake. You too, Mr. Cuomo.