What Is Fair Market Value?

Last week I had the honor of writing in the Saporta Report about how appraisals are not keeping up with the rapidly changing real estate market in intown Atlanta. Indeed, the real estate market in Atlanta is looking quite rosy these days.

What I told Saporta Report readers: Every agent I know has a backlog of ready, willing, and able buyers waiting for the right listing to come up. The same scene plays out over and over again: A good new listing comes up for sale and there are multiple bids on it within a few days; sometimes within a few hours. This is a simple case of supply and demand working the way it has always worked – though that give-and-take was certainly tempered by the economic stresses of the past few years.

So, what’s the rub? In this much-improved real estate climate, appraisers are doing as they have always done – using the closest and most recent comps. In some cases these comps are from several months back. Even 6-8 months back. Normally, that is a reasonable time period to judge the value of a home in any given market. However, with the market rapidly changing, that’s not always the case.

Just as buyers have had to adjust to the new normal in the market here, so must the banks and their appraisers. Homes are selling for more than the comps suggest they should, but these are not over-inflated prices. These are actual sales where the price was driven up by pent-up demand. Isn’t that what fair-market value is supposed to be? What a seller is willing to sell for and a buyer is willing to pay?

I realize that banks and mortgage companies have very strict rules and regulations for their appraisals, and who can blame them after what happened to the market a few years ago? But this is a very different scenario. Back then the market got inflated because people were given loans for which they never should have qualified. Believe me, lenders have made plenty of changes in their policies, procedures, and qualification processes since then. Loans are more difficult to qualify for than they used to be, and again, I understand the need for that.

What will ultimately happen (and is happening) if the appraisal values don’t start getting adjusted for the current state of the market is that the prices will be suppressed, which will turn off potential sellers, and the frustrated buyers will drop out of the market and continue to rent.

The booming real estate market is very exciting, and certainly a good sign for the economy in general. Let’s not hold it back.

In the meantime, what can buyers do to be best prepared to strike in this market? To read my tips on this, please see my column from the Saporta Report (http://saportareport.com/blog/2013/04/pent-up-demand-has-homes-selling-like-hotcakes-but-appraisals-out-of-date/).