Right now, what I am hearing is something you may already know but no one wants to admit. The appraisers of the world are helping to drop home values like crazy. And it is not over yet.

In my last few sales transactions, I have had appraisers drop home values up to 20%. It is a different world in the mortgage industry than just three months ago. Banks, Fannie Mae and Freddie Mac and other Mortgage insurance companies are driving the prices down. They are giving direction to the appraisers with very narrow criteria. Home sellers do not understand how their values are dropping or why.

It is important for you to understand that if you are selling or buying a home, get a reliable appraisal. You will need to evaluate where your price is every three months. Just last week, I sat through an educational class and heard what appraisers are doing when they determine value. First, they use the last 3 months of comparables (comp) in square feet only. They are only allocating $10K for upgrades (even if homeowner spent $100K). If they can't find a recent comp they reduce the last comp sold by 1/4%, or close to that percentage, for every month since that comp was sold (sold in October of 2007, then reduce that sold price by 1.5% for today's value). Appraisers are including comps for short sales and foreclosures in the mix if they are in the comp area and match the subject house. Information also considered are days on market (negative effect if greater than 120 days), the fact that all of Florida is considered a "declining market", and how much inventory is in the community where the subject house is located.

Even cash buyers are insisting on an appraisal, in order to buy, because they want to know that the value is there in the final purchase price. Buyers do not want to overpay in this declining market. Sellers when presented with an offer, need to consider is it low or have you just not adjusted to this market price. Home sales are very close to 2003 prices. I encourage Buyers to get an appraisal, if the Seller has not had an appraisal in the last three months. If you are purchasing with a mortgage, the mortgage lender will require an appraisal. The Buyers offer is typically contingent on the house appraising at or above the sales price.

At this point, an appraisal is a wise investment for all sellers in light of this information. Appraisers seem to be in the driver seat for the mortgage companies. Your REALTOR should prepare for you a market condition report. Mortagage companies choose the appraiser based upon their approved list.

If you are selling your house the only controls you have include pricing your house to sell, making the condition of your house competitive to other houses, and providing easy access for the house to be viewed by any REALTOR/Buyer. You want your house to be #1 in price and position in the MLS to be noticed. If you need to understand the competition, get out with your REALTOR and visit your competition. Be aware that the asking price today may not be your asking price in three months if your house doesn't sell. Your asking price is just that. Buyers truly determine the value of the home they buy.

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