(Sept. 25, 2020) With “for sale” inventory limited in many price points, sellers may be able to ask more for their home.
But, sellers need to remember that the home will still need to appraise adequately if the buyer is obtaining a mortgage. And, in an improving market, appraisal values may have a hard time keeping up with true market value.
“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,” Lawrence Yun, chief economist at the National Association of Realtors (NAR) said. “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.”
In many cases, the homebuyers most affected are the younger, first-time buyers because they are mortgage dependent.
And, many first-time buyers use low down-payment loans, which tend to have stricter underwriting standards and also stipulate that the appraisal price cannot be any less than the contract price.
When appraisals come in even the slightest bit under the contract price, the mortgage financing can fall through.
In addition, reports of delayed appraisals and rising appraisal costs have been more prominent as the market has improved and sales have increased.
Demand for appraisals comes not only from home sales, but also refinances. NAR research has reported that appraisers median age is close to 55 and as a result, a big wave of retirements is expected in the next 10 years.
The Appraisal Foundation (AF) maintains records of the number persons who pass the National Uniform Licensing and Certification Examinations (NCLUE) exam each year. This exam is required before an appraiser can practice.
In 2008, 2,087 people passed the exam but that figure fell to an average of roughly 1,000 from 2010 to 2014, before bottoming at 662 in 2016. In 2019, the average is approaching 1,000 again with 987 people passing the exam.
– Lauren Bunting is a licensed Associate Broker with Atlantic Shores Sotheby’s International Realty in Ocean City.