Austin Realtors: Bidding wars and listings selling WAY over list price

[Idlewile]

I had wondered the same -- how many don't appraise -- but it doesn't seem to be common in the last 4-5 months based on what Falconhead says and I do see homes in my area closing for high numbers, sometimes quite a bit over asking (with a close of 30-40 days) so they must have made it work with the appraisal/mortgage.

I'm curious about appraisals in this ever-rising market though. Aren't they really based on 'supposed' market value? If so, and many buyers are clamoring (bidding over asking) over homes and the sold price goes up then that's market value then, yes?

Figuring out how appraisals really work feels a bit like chicken and the egg to me... what drives what? And do the appraisers really always have the pulse of the market in that area?

[10scoachrick]

Originally Posted by Idlewile

I had wondered the same -- how many don't appraise -- but it doesn't seem to be common in the last 4-5 months based on what Falconhead says and I do see homes in my area closing for high numbers, sometimes quite a bit over asking (with a close of 30-40 days) so they must have made it work with the appraisal/mortgage.

I'm curious about appraisals in this ever-rising market though. Aren't they really based on 'supposed' market value? If so, and many buyers are clamoring (bidding over asking) over homes and the sold price goes up then that's market value then, yes?

Figuring out how appraisals really work feels a bit like chicken and the egg to me... what drives what? And do the appraisers really always have the pulse of the market in that area?

I'm guessing a fair number of these folks don't worry about appraisals...our last LTV was a fair bit below 50% and we purchased our current residence outright...appraisals weren't critical in our buying process either time. People tossing an extra 10-15% over asking just might be coming with a significant down payment, if not ALL cash.

Let's hope not TOO many folks are teetering on the line between qualifying or not if they are(at least theoretically ) spending more than they 'should' trying to find a place in Austin.

[Idlewile]

Originally Posted by 10scoachrick

I'm guessing a fair number of these folks don't worry about appraisals...our last LTV was a fair bit below 50% and we purchased our current residence outright...appraisals weren't critical in our buying process either time. People tossing an extra 10-15% over asking just might be coming with a significant down payment, if not ALL cash.

Probably true... or at least it may happen more than I realize!

[austin-steve]

Originally Posted by 10scoachrick

I'm guessing a fair number of these folks don't worry about appraisals...our last LTV was a fair bit below 50% and we purchased our current residence outright...appraisals weren't critical in our buying process either time. People tossing an extra 10-15% over asking just might be coming with a significant down payment, if not ALL cash.

Let's hope not TOO many folks are teetering on the line between qualifying or not if they are(at least theoretically ) spending more than they 'should' trying to find a place in Austin.

Correct. It's common for competing buyers to "waive" the appraisal by adding language such as "buyer will cure any appraisal shortage with additional downpayment at closing. That language, plus a strong "ready to sign" offer and solid qualification letter can often put a buyer over the top even if the offer price isn't the highest in the bunch. The "best" buyer isn't determined by "highest offer" necessarily, but by who presents themselves as a buyer ready to get over the finish line.

I personally prefer a balanced market where buyers and sellers are on somewhat equal negotiation footing. These pendulum swings create distortions in the market. Real Estate is in fact cyclical, but the rhythms of Summer/Winter as well as the typical 5-7 year up/down markets now swing more wildly more quickly it seems.

Oddly, this has happened and continues as "consumers" have more "information" than ever before as various attempts to disrupt the traditional real estate Brokerage business through technology and the internet heat up. Zillow is nobody's friend, and has helped noone. People love to surf and gawk, but from my perspective of almost 25 years in Austin, all of the additional information and data has not created smarter consumers. Just the opposite in most cases.

Steve

[RoadWarrior12]

Originally Posted by austin-steve

Oddly, this has happened and continues as "consumers" have more "information" than ever before as various attempts to disrupt the traditional real estate Brokerage business through technology and the internet heat up. Zillow is nobody's friend, and has helped noone. People love to surf and gawk, but from my perspective of almost 25 years in Austin, all of the additional information and data has not created smarter consumers. Just the opposite in most cases.

Steve

I think this is true of the first-time buyer/seller, but not the case for those of us that have been through 6,8,10 transactions. I agree that some of the aggregators that try to present themselves as online brokerages have done more harm than good. Personally, I'm all for disrupting a somewehat antiquated system, but the execution has been severely lacking up to this point.

Add in the staged HGTV/DIYTV shows and I think people have some pretty unreal expectations and perceptions out there.

[Danbo1957]

Who are your current "paying over list" customers: new to Austin, or long-time residents moving from one part of town to another?

[achtungpv]

We bought in the past year in Allandale and paid ~$30K over list.

We were okay with this because:
1. The house appraised for 27K over what we paid.
2. The price per sq ft was less than other houses in the neighborhood within +/- 200 sq ft in size.
3. There was no structural remodeling necessary. Interior paint, hardware, light fixtures, flooring. Kitchen is perfect fine but we will update it next year.
4. We had a hydrostatic test done on the sewer line and it held 100%. In Allandale, it's a huge issue with the original sewer lines failing and they frequently cost over $30K to replace.

All in all, we are very satisfied with the price we paid for our house. We have yet to see one in comparable condition in our neighborhood that isn't at least $50K more than what we paid.

[johnrex62]

Originally Posted by Idlewile

I'm curious about appraisals in this ever-rising market though. Aren't they really based on 'supposed' market value? If so, and many buyers are clamoring (bidding over asking) over homes and the sold price goes up then that's market value then, yes?

Figuring out how appraisals really work feels a bit like chicken and the egg to me... what drives what? And do the appraisers really always have the pulse of the market in that area?

Market value is whatever a willing buyer and willing seller agree upon. The appraisal is a time in place evaluation of a market value based on recent past performance. This is of necessity a historical market value of at least a few days to maybe months past.

This has the effect of lengthening the valuation curve of ups and downs, and creates a more "stable" marketplace. The sale of a home creates the underlying artifact used by the appraisal to estimate the current market value. Since there is some margin of error or range in the estimate, a home can sell for a slightly higher price than the pure average price and still be accepted by the mortgage underwriter, thus allowing for a market rise over time. Likewise, a lower than average price is permitted since the mortgage underwriter is primarily concerned with over valued properties.

The sale prices dictate the average upper limit of mortgage values, and therefore normally limits the upward rise of sales prices since most require a mortgage. Over time this will creep establish new appraisal limits for a property.

There is as much art as science in this process, since there are a number of features that will have variable quality and impact in a specific area, perhaps different that in another nearby area. These variable can alter the comparables net worth to a specific appraisal. Some appraisers will pick up on those factors and others may not. All of them could assign different weights to the impact to a specific home. The mathematical framework gives a structure to the process and assures that all value estimates are within a certain degree of accuracy, but that variance can be substantial in some cases.

When all is said and done, however, every appraisal is only someone's opinion. Hopefully is it done by someone with a firm grasp of the process and knowledgeable about the market condition and norms.

[austin-steve]

Originally Posted by RoadWarrior12

I think this is true of the first-time buyer/seller, but not the case for those of us that have been through 6,8,10 transactions. I agree that some of the aggregators that try to present themselves as online brokerages have done more harm than good. Personally, I'm all for disrupting a somewehat antiquated system, but the execution has been severely lacking up to this point.

Add in the staged HGTV/DIYTV shows and I think people have some pretty unreal expectations and perceptions out there.

I can agree with that. Sometimes looking back though I feel like "things were better when they were worse".

I'm trying to book a room for 2 nights in Houston right now. The internet is in fact not making it easier as there are a lot of sold out rooms in the area I need, and I have to spend time reading reviews of places I would not normally stay. And then I have to start trying to book and click through a bunch of screens before learning that that place is also sold out. Then rinse and repeat.

In the old days I would have called my travel agent, told her what I want, and been done in a few minutes, for better or worse.

Whether Realtors deserve to continue to be "guardians" of the listing data is open to fair (but winnable) debate, but once there isn't a single repository to go anymore for accurate listing data and good market information, people will harken "back to the day" when you could call a Realtor and they could pull up "everything" instead of you having to surf 4 websites and drive every neighborhood because it's not all in one searchable MLS pot anymore.

We've pulled a lot of buyers out of over priced bidding scenarios, as well as nudging them forwrd into what seems like too much. That's because there is paying "responsibly too much" and "irresponsibly too much". It takes a broader context and experience to know the difference, and you can't get a good feel trying to self-tutor yourself online. There are a lot of micro-factors that require deeper knowledge, history, trends, etc on whether to pull the trigger or not.

That "knowledge repository" is being replaced but clickbait junk data on sites like Zillow and Trulia, which just like junk food is info that consumers like and eat up, but which actually makes them stupider. We spend a lot of time trying to help people unlearn what they think they know and replace it with what they need to know. I know this sounds self serving, but it's the truth as I see it.

Steve