This market is one for the ages. We are all familiar with the traditional method of home valuations: appraisals. This is what typically happens when a home goes under contract and the buyer is obtaining a loan:

1. The buyer’s lender orders an appraisal to protect their interests and ensure they are not financing an asset that is worth less than the purchase price per the loan terms. 

2. A random appraiser, yes any licensed appraiser, can grab the appraisal order from the lender and begin the appraisal process. 

3. The appraiser will utilize “comps” aka sales comparables to help determine the value for the subject property.

4. Using an archaic algorithm, the appraiser will produce a report for the purchaser assigning a value to the subject property. This value must be at the sales price or higher under most circumstances.

Enter 2021 Housing Market…

Where cash is king and so is “waiving appraisal contingencies” in order to compete with cash offers. In short, let’s say you agree to purchase a home for $300,000 per your accepted offer and it appraises for $290,000. You are obligated to fund the $10,000 shortfall. So, you would put down $60,000 (20%) plus $10,000 for a total down payment of $70,000.

Now, all of this sounds well and good, but home values can swing wildly in this market. I have personally witnessed the same exact floor plan sell for $60,000 more simply based on the buyer pool and available inventory. Let me explain. With such a tight supply of available homes in the marketplace, the current buyer pool literally hops from home to home based on the current supply. In other words, these 5 homes are on every single buyer’s list because they are the market at the time in that price range. The most attractive home typically sells first and so on and so on. 

The winning buyer of that previous home (feels that way in multiple offer situations) may have had “buyer’s fatigue.” What is buyer’s fatigue? A phenomenon that is a result of losing out on several homes in a row, finding another home that they really like, and submitting an offer substantially over list price to “end the madness.” This scenario brought about that $60,000 delta from the headline. If the current buyer pool does not have fatigued buyers, the sales price may not be increased in a similar fashion. Hence, the phrase “sales are a lagging indicator” has never been more accurate.

This is a very real and repetitive scenario that will play out over and over again in this market. It further exemplifies how truly emotional, irrational, and complex this current market is behaving. An experienced and accomplished real estate professional has never been more valuable. If you are considering selling or purchasing, it would be my privilege to speak with you and demonstrate how my 22 years of real estate sales experience could help you accomplish your objectives. Feel free to text me at 949.466.1015 if you have any questions.