Why Low Arizona Appraised Values?

A low appraised value in Arizona throws a monkey wrench into any Real Estate transaction.  In a vibrant, hopping Real Estate market basic norms tend to lose their footing.  Appraised values are a good example of that.  During a volatile Real Estate market we heard more talk about low appraised values in Arizona.

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Is a Low Appraised Value Common?

According to one appraiser a normal distribution of appraised values is:

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

In other words, 9 out of 10 appraisals come in at or above contract price in a “normal market.”   During a time where home prices are rising or falling faster than normal the ratios tend to be far different than above.

Why Low Arizona Appraised Value Mr. Appraiser?

One of the primary reasons we see low appraised values in Arizona is because of “Time Value Adjustments.”  Appraisers use Time Value Adjustments to adjust value up for a comparable sale used show what the house would be worth today.  A Comparable sale is a recent home sale used on a appraisal to figure the value of the home being appraised.  Comps need to be near and similar to the home being appraised.

Time Value Adjustments Impact on  Appraisals

In markets where home prices rise quickly,  a home that sold 1 month ago would be worth more today.   For example, assume a comp sold for $250k 30 days ago. In addition, assume that same house is worth $260k the day the appraisal is being completed.  In order to utilize that comp valued at $260k appraisers use a time value adjustment.

Initially, appraisers must enter the $250k sale on the appraisal as a comp.  However they then add a time value adjustment increasing the value to $260k.  That $10k swing will impact the value of the home being appraised.

Applying Time Adjustments

Some appraisers use time value adjustments well.  Others do not use them at all.  The rest fall somewhere in the middle.  Time value adjustments (and a great deal of appraising on the whole) is not objective.  Instead, licensed appraisers determine the value and weight to give different aspects of an appraisal.

Don’t hold us back

Recently, an Arizona Realtor had an appraisal come in low on her Phoenix area listings.  When asked “what comps did the appraiser use”  she stated the appraiser used an old sale.  Furthermore, the appraiser did not give any time value adjustments.  In other words, the appraiser said the home used as a comp would not sell for $1 more 60 days after it was sold.

In the aggressive market these homes are in, that statement is no different than me telling you the sky is a nice shade of green this afternoon.   As clear blue as the sky is in Arizona , this appraiser was off the mark.  This challenge could have been avoided using proper Time Value Adjustments.

Check out your options when you have a low appraised value.

By Jeremy House

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