Why appraisals are useless in the 2013 Los Angeles Real Estate Market
by Ben Nicolas
on Saturday, April 27th, 2013 at 2:18am.
Appraisals are useless in the 2013 Los Angeles Real Estate Market
Theoretically an appraisal is supposed to represent the current market value for a piece of residential real estate. If you look at a standard appraisal done on the Fannie Mae form 1004 an appraiser will use 3 different methods to determine value: Cost Approach, Income Approach and the Sales Comparison Approach. In the Residential market the value typically used is the Sales Comparison Approach, meaning the appraiser uses prices of comparable properties (similar age, square footage, lot size, condition, amenities, neighborhood, sold within last 6 mos within a 1 mile radius).
Becasue HVCC appraisers are using past sales (typically distressed) to determine value of a property with multiple offers at the contract price.
In our current April 2013 Los Angeles Real Estate Market with multiple offers on almost any decently priced property the value of these homes should be increasing to establish a more realistic equilibrium between supply and demand. If demand far outweighs supply prices should be increasing, Econ 101. But when government intervention (like HVCC) interferes with natural market forces it leads to a frusturating impasse for both buyers and sellers. Sellers won't list their homes because they think that if they wait for the comps to catch up to demand they can sell for more and buyers are only able to access a limited inventory.