Why Low Arizona Appraised Values?

A low appraised value in Arizona can throw a monkey wrench in any Real Estate transaction.  In any vibrant, hopping Real Estate market it is normal to see  fundamentals lose their footing temporarily.  Appraised values are one of those fundamentals that can be impacted when markets are rocking and rolling like ours is.  Recently, I have heard more talk in our local market place about low appraised value in Arizona coming in under contract price.  According to one expert appraiser (Andrew Turley with Phoenix Valuations) a normal distribution of appraised values looks something like this:

80% of appraised values meet contract price
10% of appraised values exceed contract price
10% of appraised values fall short of contract price

Essentially, in a normal market 9 out of 10 appraisals come in at or above contract price presenting no issues from a valuation standpoint. I do not have any solid stats regarding how many appraisals are coming in today with values below contract price however we have all seen a slight uptick in the number of low value appraisals.

Why Low Arizona Appraised Value Mr. Appraiser?

One of the primary reasons we are seeing low appraised value in Arizona is related to something called “Time Value Adjustments.”  Time Value Adjustments are used by appraisers to pull the value up for a comp being used on an appraisal to show what that house would be worth today.  Quick side-note: What is a comp?  Comp is short for comparable and it refers to a comparable sale.  Comparable sales are completed home sales values that are used on a appraisal report to determine the value of the home being appraised.  Comps being used must be near the home being appraised and must be similar to the home being appraised.

Time Value Adjustments: how they impact appraisals

In a market where home prices are rising quickly, it is fair to say that a home that sold 1 month ago might be worth more today.   Let’s use an example to illustrate how Time Value Adjustments can make or break an appraisal.  Assume a house sold for $250k 30 days ago and that it is being used as a comp on an appraisal.  Now let’s also assume that same house would be worth $260k the day the appraisal is being completed.  In order to utilize that comp and give it a value of $260k an appraiser must use a time value adjustment.

You see, an appraiser must enter the $250k sale onto the report as a comp as a $250k sale.  However they can add a time value adjustment to increase the value so that the value for that comp is ultimately factored into the new appraisal at $260k.  What’s the difference you say?  That $10k swing will impact the value of the home being appraised.

Applying Time Adjustments:

Some appraisers use time value adjustments well, some do not use them at all and quite a few fall somewhere in the middle.  Time value adjustments (and a great deal of appraising on the whole) is not objective.  It is up to a licensed skilled appraiser to determine what value or weight to give to certain aspects of an appraisal which ultimately impacts the value of the home being appraised.  Low appraised value in Arizona can definitely be impacted by Arizona.

Don’t hold us back

Just yesterday I was speaking with an Arizona Realtor who had an appraisal come in low on one of her Phoenix area listings.  I spotted her comments on a Facebook group I am in and asked about what comps the appraiser used.  Sure enough, the appraiser had used a relatively old sale and had not given it any time value adjustments.  Theoretically speaking that is the exact same thing as the appraiser saying that the home used as a comparable would not sell for $1 more today than the day it was sold.  Have you looked at Arizona real estate trends lately?  If so, you know that statement would is no different than me looking out my window right now and telling you the sky is a nice shade of green.   As clear blue as the sky is in AZ today, this appraiser was off the mark.  Challenge is that now the buyer/seller are facing a challenge that could possibly be avoided with proper Time Value Adjustments.

If you find yourself facing a low appraisal check this article out to see what your options are: LOW APPRAISED VALUE OPTIONS

By Jeremy House

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