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Thursday, May 24, 2007

AZ Appraisals Still Coming in Too Low for Sellers

As Arizona home sellers continue to overprice their homes, appraisers continue to force them back into reality.  Over the past several months, I've seen numerous AZ real estate contracts canceled due to the appraisal.  And by looking at the prices of current listings, I'd say there will be many more deals blown by the appraiser if sellers don't start getting real about home prices.

To demonstrate how truly delusional some sellers (and real estate agents) really are, I looked at the houses currently for sale in my Mesa neighborhood.  I compared prices on the most popular floorplan (between 2500-3000 square feet).  There are currently 6 of these homes for sale - all have about the same lot size and very similar features.  I would price these homes at about $185/square foot plus or minus $10/square foot (depending on condition).  There's one currently pending contract that's been listed at $173/square foot for 56 days, and there's one pending contract that's been listed at $210/square foot for 160 days, although they probably sold for less than list price.  Of the 2 homes that are pending sale, the house listed at $210/square foot has a pool and is pretty nice, while the one listed at $173/square foot is not as nice and has a less desirable location within the neighborhood.  The one listed at $173/square foot which went under contract quickly, by the way, is an Owner/Agent!

With a complete disregard for recent comps which sold for $185-$190 per square foot, the 6 active listings are currently priced from $199/square foot all the way up to $243/square foot.  Only one of these houses has a pool, and it's not the one priced at $243/square foot!  I estimate the $243/square foot house is overpriced by about $150,000.  It's been on the market 103 days so far, and I don't expect it to sell anytime soon.  What could possibly make a person think their house is worth $150,000 more than the one down the street that's almost exactly like it?  Even if that owner made $150,000 in upgrades, the house would not be worth $150,000 more (because there's such a thing as 'over-improving' your home).

Even if you can find a buyer willing to pay a ridiculously high price for your house, you still have to convince the mortgage company of the home's value.  Lenders determine how much they will lend based on the appraised value of the home.  If that appraised value comes in lower than the purchase price, one of three things will usually happen:

  • the seller will have to lower the price
  • the buyer will have to pay the difference in cash
  • the buyer will have to cancel the contract

Sellers never want to lower the price, and buyers who are dumb enough to pay more than a house is worth usually don't have any cash to pay the difference.  So if the seller refuses to budge on price, the contract gets canceled.  This is the greedy seller's second mistake, because the next buyer will likely have an appraisal too!

Appraisers are under more and more pressure to appraise at or above sales price in order to avoid 'blowing' the deal.  But they're just doing their job.  The mortgage company depends on the appraiser to protect their interest, and to keep them from loaning more money than the property is worth.

So remember, you will likely sell your home for more money, in a shorter amount of time, and with less hassles if you just PRICE IT RIGHT in the beginning!

Visit Shannon Hubbard's Home Page     Written By: Shannon Hubbard
Realtor®-Investor

Great American Realty, Inc.

Cell: (480) 695-6672
Email me

Posted by Shannon Hubbard, AZ Realtor & Computer Guru on May 24, 2007 | Permalink

Comments

Below is an email referencing this post that I received from a mortgage broker in Chicago:

Shannon,

I just want to say Hoorah!!!! Finally, there is someone who thinks like I do. I am a mortgage broker in Chicago with 17 yrs experience and my wife & I have been searching for a 2nd home in AZ for the past 2 yrs. Needless to say, to no avail. Our troubles have been Sellers overpricing their properties based on overimproving them (we call them "white elephants" in Chicago) and my bad luck with Realtors who go along with it.

Just want to say: it seems you are one of the good ones out there who tells it like it is!!!!

Thanks for being down to earth & honest! Too bad you don't work in Chicago...I think we would make a good team & tear this city apart.

Posted by: Chicago Mortgage Broker | Jun 1, 2007 10:05:48 AM

UPDATE: The two houses I referred to in this post as pending contract have just changed to "SOLD" status. The one that was listed at $173/square foot sold for $166/square foot. The one with a pool that was listed at $210/square foot sold at $193/square foot. Also, the folks who had their home listed for $243/square foot came to their senses (a little) and dropped their price to $210/square foot - it's still overpriced and I predict it will be on the market for some time.

Posted by: Shannon Hubbard | Jun 4, 2007 3:39:09 PM

I think inexperienced agents are a big part of the problem. When they only sell 2 homes a year they don't have enough vested into the business to learn the market and learn how to educate their clients.

Posted by: Keith Jeppson | Jun 7, 2007 3:50:03 PM

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