At times like these, appraisers have a tough job. Prices have risen fast over the past few weeks but the comps that appraisers are looking at stretch much further back in time, including April, May and June, when pricing was much weaker. The result is we are seeing many more agreed sales where the appraisal comes in low. This can be frustrating for the buyers and sellers, causing some sales to fall through.
Using comparisons over the last 3 months will give us an average of about $182 per sq. ft. But closings in July have averaged over $191 per sq. ft. The rate of price increases for listings under contract suggest the $200 level is not far away. Appraisals act as a natural brake on the fast movement of prices since they assess new deals on the basis of older ones. However, when supply is very low, there is usually an offer on the table that does not require an appraisal. So despite the braking effect, the market pressures still move prices higher.
We expect offers with a waiver of appraisal to become especially attractive to sellers over the next several weeks. However, many buyers will not have that option since their lender will probably be much more cautious than the buyer. This is one thing that is very different from 2004, when many lenders were willing to throw caution to the wind. Those lenders went out of business by 2010 so it is not surprising that lenders insist that appraisers continue to do their job very carefully.