Every agent has seen their fair share of turbulence in the market, with tight supplies and national median home prices north of $260,000, according to the National Association of Realtors.
The lending situation is much tighter today, with lenders scrutinizing appraisals much more closely than they did during the freewheeling 2000s, which may have fueled the housing bubble that burst in 2008.
In a market like this, that is when truth sometimes is stranger than fiction. Take, for example, a recent CNBC report in which Texas agent Laura Barnett put a Dallas-area house on the market three weeks ago and quickly received 22 offers. She did not take the highest offer. Instead, she took the cash offer because that was the only way to ensure the sale would go through. Barnett, an agent at RE/MAX DFW Associates, said appraisals just aren’t keeping pace with sales and prices.
“They’re kind of putting a glass ceiling where we can’t raise our prices any higher than we have comps to support it, so we’re definitely going with more cash offers than we used to.”
According to NAR, the median home price nationwide in June was $263,800, a record. Lawrence Yun, chief economist at NAR, said the average number of days a listing takes to be under contract fell to 28 days.
“Anytime prices move up fast, the actual appraisal process, because they’re looking back in history, not forward into the future, they are lagging behind. From the buyer’s perspective, it’s a tough situation where they want to rely on the value of the home, on the appraisal, yet they know that if they decide to back away there are other buyers waiting to pounce.”
Barnett points out that lenders are cautious when it comes to appraisals, learning their lesson form the last housing boom. She noted that appraisers also are proceeding with caution.
“They are being instructed that unless they have actual comps from past sales, they cannot go on just the fact that they’ve been given multiple offers. They have to have comps to support it.”
Yun noted that the big losers may be younger, first-time buyers, who need mortgages and may use low-down payment financing options. If an appraisal comes in low, the deal crumbles.
“The cash buyers always push out the first-time buyers.”
Moreover, there is a shortage of appraisers in today’s market and Ken Fears, NAR’s director of housing, finance and regional economics noted that the appraisal industry is under the gun.
“Regulation, an altered appraisal market structure, and compensation issues burden those currently in the industry, while poor incentives make it harder to grow the next generation of appraisers.”
Ultimately, agents are faced with market conditions that will likely continue and the appraisal situation isn’t going to disappear. Cash buyers are going to continue to have an advantage over the competition, putting younger buyers at an increasing disadvantage and likely leaving younger clients on the outside of the housing market looking in.