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Well, history has shown us that it has not ultimately been the buyer who was most at risk- it was the taxpayers. Anyone paying cash can do whatever they want, but the rest of us have a vested interest in making sure that no gov't agency, or psuedo agency like FNMA starts acting stupid again.
Well, history has shown us that it has not ultimately been the buyer who was most at risk- it was the taxpayers. Anyone paying cash can do whatever they want, but the rest of us have a vested interest in making sure that no gov't agency, or psuedo agency like FNMA starts acting stupid again.
In theory, aren't lenders supposed to be more diligent now? If today's buyers are more qualified than the buyers during the bubble and they're better able to afford the prices that they're paying, is the bump in prices really 'artificial' if that's what people are willing to pay? How would you differentiate between an 'artificial' recovery and a 'true' recovery?
Excellent questions whose answers could fill a textbook. But briefly, FMNA's definition of market value emphasizes the actions of a 'typical' buyer. So for starters, appraisers need to not use sales of properties where either the buyer or seller had atypical motivation. When you see someone paying much higher than list price then that needs to be questioned to see if it falls within the scope of the market value definition. Far too many people think that any sale between a buyer and seller indicates market value- not according to FNMA's definition.
Cash sales also need to be analyzed properly. Far too many appraisers used cash sales for which no appraisal would have been required. That meant that many of those sales probably sold higher than their market value but went unchecked. That's Ok for that particular buyer, but an appraiser needs to analyze cash sales versus financed sales to see if they can both be used as similar comparables.
The problem is that once appraisers start using bad comparables then it becomes self-feeding-- those higher than market value sales then become comparables to be used in the next 'too-high' sale, and it never stops. Hence, runaway values.
It's at this time in the market history that many areas are experiencing some growth that appraisers need to be most cautious. Foreclosures are way down in many areas, yet this is a newer development. This means that the previous months' sales history (# units) was much higher than now because there were more foreclosures. That creates an artificial situation where it now appears that there are significant shortages of inventory in particular markets because the prior higher volume of sales is being used in the inventory calculations.
Anyway, there is lots more that can be written on this subject, but this is just an internet forum! By the way, I am an appraiser.
The inspection clause is a must, and make sure you select the inspector you wish to use.
If that's an issue with the seller or his RE agent, move on to the next house.
That realtor who stated that removing the inspection clause would make your offer more attractive has no business being in that industry for foisting such a whopper of a lie on you.
The market was frothy in 2002 when I sold my house in San Francisco. We had one open house and took 9 offers, all over asking price, the next Wednesday. The offer I accepted was $102K over asking price, miraculously appraised ok, and had no inspection contingency. When the market gets overheated, people lose their heads. I wouldn't buy without one, either.
The problem is that once appraisers start using bad comparables then it becomes self-feeding-- those higher than market value sales then become comparables to be used in the next 'too-high' sale, and it never stops. Hence, runaway values.
This was something I noticed a lot in 2004-2007. Houses would sell for 3% over asking, and the 3% represented closing costs rolled into a 0-down loan. The price with closing costs was then used as a comparable sale. The irony of prices going up because buyers had no cash was disturbing.
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