"Julie, I'm panicked," my girlfriend said to me, as we walked the sun-dappled Redwood trails off Joaquin Miller a few weeks ago. "We had an appraisal done on the house and it came in much lower than we expected." (Me too - I know just how you feel. . .)
That's when I switch from "girlfriend mode" to "REALTOR guru" and explain that the most important thing to remember with respect to appraisers, bankers, mortgage brokers, REALTORS, buyers, and sellers is that WE ALL MEASURE "VALUE" DIFFERENTLY!
Vigorously debating the topic of "value" with appraiser, Michael Flores, before the holiday break and explaining my friends negtive reaction, he was quick to remind me that "appraisals are only an opinion of value" (he's right - they are). In truth, "appraisals" are more art than science.
What's more, appraisers must adhere to a strict set of guidelines set forth by (who else?) the lenders AND the results must stand up to significant scrutiny as well. Which is why appraisers are loathe to go out on a limb and suggest a value that doesn't reflect market performance. The banks simply won't except the conclusion, nor process the loan, which in the end, is of little value to you. (Please don't shoot the messenger.) OR as Tom Cruise states in the movie, "A Few Good Men," "It's not what I believe, it's what I can prove."
Moreover, here in Rockridge, Berkeley, Oakland and Piedmont, our properties can be incredibly difficult to value from the get go. Each home is entirely unique and there's often little inventory and fewer sales with which to compare. While it's only human to believe that one's own home is worth more than the one that just sold down the street, experience doesn't bear that out.
All those lovely memories that add value for you (bringing home your first born, 4th of July potlucks, Christmas mornings, etc. . . .) don't register value on an appraiser's check list, which deals strictly in tangibles: high-end appliances, remodeled bathrooms, square footage etc. Nor do those "bonus" spaces that aren't a matter of the public record.
Add the impact of economical shifting sands to the mix and it's now become crystal clear to the majority of us, that value can move in BOTH directions.
And while it is alarming to acknowledge the downward trend over the past few years, value is really only relevant when you decide to sell your home (with one exception, lower appraisals DO make a difference in the "here and now" with respect to home equity lines). Or to put it another way, if you put your real estate assets into the 'long-term' column, you are apt to see more appreciation than depreciation over time. (It's all about perspective!)
For those of you planning on selling AND buying in this brave new world - remember that you are working in a "relative marketplace." If you are buying UP, you are very likely going to benefit in terms of equity gained and that's very good news for many of you. With historically low interest rates and softened values, the "affordability factor" has actually never been better.
So try to relax, breathe deeply and enjoy the hike. The tighter, stricter guidelines now used by appraisers are bound to adjust in time as the market recovers (and it IS showing signs of recovery, albeit slowly. Real estate and job creation figures are typically "lagging" indicators). In the meantime, what a view! Those of us happily ensconced in our homes are really in very good shape. (Now, if only self-appraisal were as easy to explain.)
Hup, two, three, four . . . let's pick up the pace!
Julie Gardner, has been writing The Perspective for 18 years and has published more than 670 essays on life and real estate.