Are Appraisals Keeping Property Values Low in Cobb?

| July 31, 2012 | Reply

In the past 3 weeks, myself or my office has been able to generate almost full price offers on on 3 separate homes for sale in East Cobb and Kennesaw. The homes were on the market less than seven days and both buyer, seller, and agents were happy with the entire transaction. Sounds like the good times are back right?  Sadly, two of the three appraisals came back tens of thousands less than what all parties agreed to on the contract.  Who is to blame? Banks? Appraisers? While I’m not sure who to blame, I’m certainly upset that a free market is being held back from improving because of forces beyond the control of seller and buyer.

Today is July 31, 2012. As of today there is a tremendous lack of inventory in the price ranges of $300k up to $1M. Do you remember the principal of supply and demand in Econ 101 from college? Most people around me slept through that class, but I was fascinated with the concept. The basic principal is this: When there is less supply and more demand, prices increase. When there is more supply and less demand, prices decrease. We see this principal in action everyday at the gas pump, grocery store, Pottery Barn, and Macy’s. This summer in particular, it seems that there are more buyers than there are houses to purchase. Inventory this summer is almost half of what was available last summer. This excites me because I own a home in Cobb County myself, and I would love nothing more than seeing my value improve.

This is a tale of a home I listed at 4006 Penhurst Drive in Marietta, GA. While it doesn’t close for another couple of weeks, I am only going to share in generalities. You certainly can call me for the final details after August 10th. This home is absolutely stunning and is a rare find in East Cobb. What makes it rare is that it sits on over 100 feet of water frontage on one of the larger small lakes in East Cobb. (we called them ponds where I was from, but when you grow up on a “Great Lake”, anything is a pond) Because of the home’s lot, we pushed the envelop on pricing due to the incredible water views and privacy. Add all those ingredients to one of the state’s most prestigious high schools in Walton High, and you’ve got a pretty good recipe for a value bump. At least that’s what my seller and I thought.

On a Tuesday, the home went live on the market after dozens of hours sweating over every detail of an incredible marketing plan. The sellers and I decided on a price of $712,500, almost $75,000 more than the last house had sold. I was crazy right? One of the neighbors said I was the laughing stock of the neighborhood! I got a good kick out of that one.  By that Saturday, we had 3 second showings, and multiple offers from two buyers fighting for the house. I knew that I nailed the pricing. Even so, with that many offers in so few days, I thought I might have under priced the home. But as I mentioned earlier, we were already $75k more than the last lakefront home. We secured a contract price of right around 98%, a post crash record for the neighborhood, and a happy seller and buyer. The market worked the way it should….until the appraisal.

I have sold houses for 11 years in East Cobb, I know the market in Walton, and the homes for sale in this school zone. This summer homes are flying off the shelves within days and points to a sellers market.  Some real estate agents however are using language like “low potential appraisals” during their listing appointments as leverage to secure a lower list price in order to move a property quickly. I don’t have much of a stomach for agents that do business this way. I’m about fighting for my clients’ bottom line and their neighbors values. The lack of supply and a larger than normal demand for housing because of low interest rates and low home prices compared to the pre-bust days of 2000-2007 are the perfect test for Econ 101.

As a general rule, I meet the appraisers at the house with comps and a letter that helps justify the pricing philosophy. The appraiser did a good job and spent a lot of time in the home.  To his credit, it was tough finding waterfront comps with this type of view. He did what every appraiser does; he uses the last six months worth of sales to help determine value. Trouble is, the last 2 months home sales have been on fire in East Cobb. In my mind, you can’t use winter time sales when the market is typically weak and prices are between 5 and 10% lower because of lack of demand. Using winter comps doesn’t make sense to me. I have never seen any type of adjustment for spring and winter comparable sales, this is one of the biggest injustices in real estate. On the flip side, I don’t necessarily think the winter comps should benefit from the summer unless supply and demand call for it. The appraisal ended up coming in $55,000 less than our agreed upon price.

After the real estate crash, banks have become more conservative. While I think this is a good thing in many respects, I do feel like appraisal firms and banks are squelching a real estate recovery in many respects. I don’t have the answers, but I do have one suggestion. One of the instructors at real estate school defined market value as a willing and able buyer agreeing to a willing and able seller given a reasonable period of time. Want to make appraisals fair? Then let the appraiser find value without knowing the terms of the deal. If an appraiser is supposed to be a “disinterested” third party, then they should be able to determine value without knowing what the buyer and seller agreed to on the contract.  That’s a radical concept isn’t it? Yep, that’s me, the radical real estate agent.

The end of the story results in compromise. The buyer came up in price, the seller came down.  Since I represented the seller, I don’t see it as a compromise. I see it as my seller sacrificing to a real estate market trying to correct but is choking by a leash that is way too tight. If market value is defined by supply and demand, then let the free market do it’s job. Banks should vet the credit worthiness of  buyers responsibly and let the market be the market when it comes to value. As always, I continue my fight to increase home values in East Cobb, West Cobb, Marietta, and Roswell.


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Category: East Cobb Real Estate

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