With prices in many areas of town increasing 1% per month, appraisals are an issue.
That's because buyers are making offers based on present demand, not past sales. And present demand (which is overwhelming) dictates higher prices than past sales, which reflect the market conditions that often existed three, six or nine months ago.
The prices being obtained for houses right now (often over list price, and usually with multiple offers) are a reflection of both present demand and perceived future value.
Buyers see other buyers everywhere they look. At open houses, at work, at the gym, and often while standing in line in the driveway of the latest new listing to hit the market.
Sellers, conversely, are nowhere to be found.
As a result, buyers must compete to win in today's market. Zillow, while interesting and informative, mostly tells the tale off what homes were worth (or sold for) in the past. If we're talking about a January sale, that number is as much as 6% below where market values are today in many areas of town.
Fair market value is what a ready, willing and able buyer will pay for a home today, as evidenced by a signed purchase offer with an earnest money deposit.
Appraised value is a conservative look at what the home would be worth based on market conditions from last fall, winter, or early this spring, when "comparable" homes sold in markets that were at least a little less frenzied than today.
Very often, these numbers are not the same, and sometimes they are not even close.
I listed a home recently that drew 12 offers, 11 of which were at or above list price. As part of the "vetting" process, we asked the top offerors to provide a bank statement showing that they had money for a down payment plus whatever the difference was between the list price and their offer price.
We did this because if the property failed to appraise, we wanted the buyer to know up front that any shortfall between the contracted price and the appraised value would be the buyer's responsibility to cover, not ours.
That's harsh, but that's life for buyers in 2014.
Time is not on the side of buyers today. With demand so far outstripping supply (absorption rates up to $400,000 are less than one month), higher prices are a given. Which means that waiting until the fall will likely add thousands of dollars to the cost of buying a home.
The message: get educated, suck it up and buy something.
Buying a home today bears little resemblance to the process of buying a home in 2009, 2010 or 2011. Buying a home today means that you must be prepared to fight and win a competition. A nice house in a good area is going to involve a battle, guaranteed.
If you don't have the stomach for it, don't get in the ring.
Eventually, this market will cool down. All markets do. The question you have to answer is whether it is better to fight, compete and win today (with prices where they are and rates in the low 4's), or sign another lease, wait another year, and take your chances again next year with 2015 prices and 2015 interest rates.
If you are thinking about buying a home today, you must get real about this. You need to get educated about what's happening, and then make a decision.
Am I prepared to fight for a house today, or do I hope for a softer market (with affordable rates) down the road?
I can't tell you for sure what the future holds - no one can. Demographics, supply/demand ratios and empirical evidence all say we're a long way from the top. But you have to decide for yourself.