WASHINGTON — Tight inventory in the D.C.-area housing market is not just driving up prices, it is starting to affect appraisals.
Appraisals rely heavily on “comps,” or recent sales of comparable properties that are similar in size, condition and — equally important — location.
“Low inventory right now has been a huge problem, both locally and nationally,” Brian Quinlan, chief appraiser at Long & Foster’s Prosperity Home Mortgage told WTOP.
“Often, neighborhood boundaries that are what an appraiser might think of historically being are really expanded now. Search parameters might not just be a half mile. They might be 4 or 5 miles,” he said.
Real estate is not really “all about location, location, location,” but location is certainly a significant part of a house or condo’s value.
Appraisers may also comp to properties that are a fair comparison, but they may overlook or not be aware of special situations.
While the appraisal process is fairly regimented, there is room for seller input. Quinlan says not only can a seller’s agent communicate with the appraiser selected by the buyer’s lender, he or she should.
“Hey, that property across the street was distressed when it sold. My client spent a million dollars replacing their kitchens and baths. They replaced the roof. They did all these things. That kind of information is so helpful to appraisers,” he said.
Another problem with an appraisal could be an appraiser that is not familiar with the market. Quinlan recommends buyers have their agent ask the lender to use a local appraiser familiar with the specific neighborhood.
A buyer could consider a low appraisal a good thing, although Quinlan prefers not to refer to appraisals as “too high” or “too low.”
“If you hire the most competent appraiser, which a lender is required to do, then it’s not the appraisal that’s low. It’s just different from the sales price because perhaps the sales price could be high. And you would want in a situation like that to have the appraisal be right because you don’t want the borrower to overpay.”
He said that is the real challenge. What really matters is that the appraisal be right every time.
