By D Scott Murphy, SRA & E Grant Murphy, SRA
The COVID -19 pandemic has had a major impact across the Georgia economy and throughout the world. The real estate market has been impacted in ways no one expected or could have predicted.
In the winter of 2020, many businesses began to reopen and the demand for housing ramped up. The housing supply was at an all-time low as supply chain issues hindered new construction causing many builders to stop building houses or place projects on hold.
By the beginning of 2021, many areas in Georgia were experiencing a buying frenzy. There were far too many buyers for the far-too-small supply of homes available. Then came the somewhat more unexpected change to the Georgia real estate market: an unprecedented number of out of state buyers. Many of these buyers had been untethered by requirements for proximity to work and were looking for a change and new environment. Comparatively low Georgia real estate prices, low taxes, and an overall lower cost of living enticed buyers from other parts of the country. This wave of eager buyers put fuel on the already red-hot market. Sellers were now receiving offers 10-20% above list price and buyers were removing ALL contingencies – including the appraisal contingency.
With no appraisal contingency and buyers willing to either pay cash or cover any shortfall between the sales price and appraised value, sales prices began to skyrocket. Historically, an annual appreciation on the value of real estate would be 5-7% which would result in homes doubling in value every 15-20 years. Recently, it has not been uncommon for sales prices to be rising 1-2% per month, or 20-25% per year annualized. At this rate, a home’s value could double in 4-5 years!
Is this growth sustainable? Do these sales prices represent true market value? Appraisers have been struggling with these questions. In a multiple-offer scenario where the asking price is lower than the offers from prospective buyers, the market is clearly telling us the market value is above the asking price!
Then why are so many appraisals coming in low in such a hot market? Clearly, there are plenty of buyers interested in paying the asking price (or more) in a multiple-offer scenario.
As appraisers, we are asked to estimate market value as a snapshot in time based on historical sales. With sales prices in many markets rising so rapidly, using a sale just 3 or 4 months prior, even with strong appreciation adjustments, may not represent the current market. Most of the low appraisals we have seen reflect appreciation adjustments that are too low, or there is no appreciation adjustment at all.
What can agents do to help?
Make sure every listing is properly exposed to the market. Some homes sell before submission to the MLS is possible. Please follow through and list every property the way you would have normally done in the MLS. This gives appraisers, appraisal reviewers, and the entire market access to this critical information.
Monitor the pending sales in your market and suggest to delay the buyer’s appraisal, when necessary, to allow a vital pending sale to close. In a market where values are increasing as much as 1-2% per month, these pending sales are crucial to a true representation of the most current value of the subject property. Now, more than ever, it is imperative that appraisers call and confirm the details of under-contract listings. Agents should be forthcoming and share all they can with appraisers.
It is also important for appraisers and agents alike to remember that appraisers do not determine market value. They interpret market value. Buyers and sellers determine market value. While not every signed contract between buyer and seller constitutes market value, the vast majority do. It is the appraiser’s challenge to research the market, gather information, and prepare a report with provides a supportable opinion of value.