Tim Koontz gives a few thoughts on home appraisals and the effect that foreclosures and the current lending environment have on people looking to build a new home.
There has been a lot of chatter in the news lately regarding home appraisals. In many areas of the country, the appraised value of homes has dropped significantly.
This drop is due in large part to the number of foreclosed properties that have sold at very depressed prices. These new “comparables” have a significant impact on other similar properties. In the Quincy area, we have been fortunate to avoid many of the big swings (up or down) in the appraised value of homes.
However, we do struggle with the limited number of comparables available, especially in the market above $400,000. When a property sells at a significant discount, whether due to a corporate move or a foreclosure sale, that single comparable can have a large impact on other similar valued homes. This “comparable” has an impact on those selling a home, but also on those building a home.
Banks have become more discriminating with their lending, often loaning 10-20% less than the full appraised value of a property. If the home an individual is about to buy or build is undervalued through the appraisal process, the amount of cash needed to make the deal happen can be significant. Again, the Quincy market has been fortunate, and currently there are some good comparables for higher valued properties. Right now might be a great time to move forward with a project you have been considering, especially in view of the record low interest rates available. Understanding the role that your banker plays, and how appraisals and comparable sales factor in can prepare you to make the most of this process.