Through all the ups and downs the housing market has been going through, one key issue is holding the market back from growing.  The market IS seeing lots of improvement from a year ago but that is just from housing activity and not the facts.  The activity in the market has been growing over the past year but the facts of the matter is that, nationally, we are not improving when it comes to home appraisals and valuation.  Home appraisals are the staple to the healthy economy and because of the past few years of poor valuation we are seeing the effects today…Here is why:

Before the housing bust, home appraisals were getting out of hand, making higher valuations than the property was worth.  This market characteristic contributed heavily to the housing bust, homes were jumping up 10-16% a year, when on an average year home values are to appreciate between 2-4%.  This spike in home values lead to the crash and the appraised values plummeted and over the past 3 years we have seen large de-valuation of homes where they were highly valued.

The home appraisals of today are the effects of the high appraisals and the low home values of the past 3 years.  What is happening today is that home valuations are turning up lower than the REAL value of the home.  What I mean by REAL value of the home, is that a home may actually be worth $500,000 BUT because of the low appraisals of the past few years, the home that has a REAL value of $500,000 will end up being appraised at a lower value because the appraiser does not have comparable homes to compare it to.  And if the appraiser does have homes to appraise it to, they are at a lower price because of the housing bubble bust and the home values of comparables that have sold recently are at a lower price, therefore, causing the home with the REAL value of $500,000 to be valued below its worth at say $450,000.

Now you may be thinking, ok, its valued at $450,000 but im going to put it on the market for the $500,000 because that the real price it should be appraised at.  The problem here is 99 out of 100 times a buyer will want to see the most recent home appraisal and if the appraisal says the home is worth $450,000 and not $500,000 (as listed) the buyer will not be willing to go above $450,000 on the home and will end up buying a house down the street and leaving yours on the market for a long long time.

This is a very interesting subject to keep track of, because until home appraisers can figure out a better system to appraise homes, we may be stuck in this downward appraisal turmoil for a long time.  The appraisal system has the power to turn the housing market around and bring things back to normal.

I’d love to hear some comments on home owners/ home buyers/ home sellers, and what you think about all of this.

Bill Allen is a Realtor in Boulder and works at Remax of Boulder