Low appraisals holding median price down in Phoenix

Some really good articles in the AZ Republic over the last week regarding the Metro Phoenix housing market and foreclosures in particular. It covered where foreclosures began and a trajectory of how and why they spread. It was interesting to follow the inexorable creep of this economic plague as it started on the fringes in places like Surprise and Buckeye due to the subprime mess and spread gradually inward voraciously consuming zip codes and neighborhoods in places like Chandler, Gilbert, Scottsdale and Phoenix until it reached even Paradise Valley. The reasons that foreclosures continued to gain steam and transcend the subprime mess were due to other economic factors partly created by the subprime mess itself – consumer confidence, recession, joblessness, drop in household net worth blah blah.

So here we are now in October of 2011 and we’ve seen foreclosures declining slowly since early 2010.

It looks as though those areas on the fringes that got hit first are slowly beginning to recover as are some neighborhoods in metro Phoenix.

Many of the fundamentals have improved in 2011, including decreases in housing supply, the number of monthly bank foreclosures and the length of time it takes to sell a home while investor driven demand is showing no signs of abatement.

Despite this positive news metro Phoenix median price fell to a 10-year low of $116,500.

Seems like prices should be inching up. Doesn’t really make a whole lot of sense on the surface.

Part of the answer to this conundrum is unreasonably low appraisals. Appraisers are a bit gun-shy since the housing bubble burst due to their complicity in the debacle. If you remember many less scrupulous appraisers were willing to come up with whatever value that was required to get the deal done. Many times they would just ask the mortgage broker to give them the value.  This would in turn lead to more business from the real estate agents and mortgage brokers – everybody won. The buyer got their house and everyone else made mo money, mo money, mo money.

As they now err to the side of caution many also fail to separate the wheat from the chaff.

Dilapidated foreclosures that have been vandalized with missing copper, broken drywall and other similar issues are being used as comps for nicer homes in livable condition.

The current situation really dictates that appraisers do a better job and dig a little deeper to compare apples. Since appraisers charge a flat fee they do not have the incentive to put in more time and effort.

I’ve personally had two deals under contract in which the appraisals came in under the contract price. Fortunately they were close enough to still do the deals but I’ve heard of more than a few deals that have fallen through due to a low appraisal.

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