There is no way for me to tell for certain that your appraised value was "made to order", but this certainly is taking place. In fact it is one hot topic among appraisers. I have lost more clients and money than I care to think about because of lender pressure to "hit the number". There are way too many dishonest appraisers out there that will hit the value needed to close the deal. One thing I will say is that with a sale, you at least have a buyer and seller that agree on the price. If both have done their homework, you usually don't run into a value problem since there is good deal of transparency in the market. Unlike earlier times, there is a ton of data on sales and listings readily available through real estate agents, the local assessor or tax authority and online. Where you do run into a problem is with refi's. Most people want the highest value they can get when they refi, so they get more money. I usually ask them if they have ever been "upside down" in a car (i.e. owe more than the car is worth). Most people have and it is not pleasant. There are lot of people who are "upside down" in their house, they just don't know it. PS for some insight on appraisal related issues check out the following site. http://www.appraisersforum.com
The asking price on my home was actually $249,900 and I bid $1,000 above to get it. Lesser homes in the area were listed at $280,000. I am now out of mine however. The escrow instructions required fire insurance on the property before funds were released. Since the home is in what is declared a "fire hazard area" and insurance companies in California are getting really stingy over writing new policies after losing so much money in fires, earthquakes, mold, floods I could not get one insurance company to cover it. I talked to one broker who told me " I represent over 70 companies and not one of them will touch it". Of course now my agent is pushing less of a house for $260,000 on me and I'm thinking if mine could only appraise at $253,000 how could this other one be worth $260,000? The more of this I see the more I think I am better off just saving my down payment and renting an apartment.
Puffy, I believe that the basis for the appraisal has to be a comparative to other homes in the area based on substantive factors. If not, we have a Tulip marketplace situation and the greater fool theory at work. If you didn't have the substantive factors, a nefarious seller could get some phony offers lined up to help justify an inflated appraisal based upon those offers. Word definitely gets out about the offers on the table for any particular home and it could happen very easily. IMO, if an appraiser uses offers as a basis for value they are not performing their responsibilities. I know quite a few companies that would want that same person for yearly inventory observations for auditing purposes..... if you know what I mean!!! The real estate environment reminds me of "Auction Fever". Come hell or high water I'm buying that trinket worth $1000 for whatever it takes. $1500 and a bit of buyer remorse later you get what you deserve. Similar to the NAS run-up, nobody wanted to be on the outside and chased the market. This market has become VERY emotional for a number of people not wanting to "miss the boat" regarding home price appreciation I wonder if the agencies that buy these baskets of mortgages really look at the basis for the appraisal. It got ugly the last 2 times this happened. Have a great day, Cracked
dotslashfuture's comment on rental rates is very germane. An interesting article in a recent Wall Street Journal discussed this very issue, saying the P/E ratios for housing were getting out of hand (P = the inflated "selling price" and E = the prevailing rental rates). I fear that, right now, too much capital (too many stock market refugees, mortgage providers, appraisers, etc.) are chasing too few buyers. Add to that the buying frenzies (like crackedback mentioned) and the results aren't pretty (wanna trade this tulip bulb for that house over there?) The scary thing is that Greenspan does not control mortgage interest rates with his little knobs. My concern is that rising default/bankrupcty rates will scare off investors in mortgage-backed securities and drive mortage interest rates higher regardless of what the prime is doing (mortgages = junk bonds anyone?) Worse, the current slide of the dollar is going to send a lot foreign capital packing and we know that the average over-indebted American doesn't have any cash to lend to his neighbor for a mortgage. I doubt things will be as bad as in Japan. At least the business/banking culture in the U.S. doesn't have to worry about saving face and maintaining long-term cross-holding-backed relationships -- banks here can and do cut their losses. But, still, the results won't be pretty as consumers cutback spending in the face of high-debt and few prospects. -Traden4Alpha Disclaimer: I'm no economist, I just play one on these forums.
The P/E ratios for housing (P = the inflated "selling price" and E = the prevailing rental rates) is definately still rising in Silicon Valley. Check out the following info which contrasts the Residential and Office Rental markets with Residential Housing market. "In Santa Clara County (inludes Silicon Valley), the apartment rental rates have dropped from an average $2,038 last year to $1,525 currently, a drop of 25%" Source: July 17, 2002 San Jose Mercury News "Rental prices leveling off, valley housing study finds" http://www.siliconvalley.com/mld/siliconvalley/3684630.htm Commercial Office Rentals are even worse, approaching depression. "A recent study by BT Commercial Real Estate found more than 39 million square feet of office space vacant in Santa Clara, San Mateo, Alameda and San Francisco counties. That's enough space to cover 821 football fields or about 1.4 square miles. Assuming the Merrill Lynch assessment is correct, however, the actual amount of empty space could be twice that." "Some commercial pockets of the South Bay were like ghost towns, he said. In some areas ``there wasn't a single building that was rented -- no tenants -- for three or four blocks.'' Source: June 5, 2002 San Jose Mercury News "Office vacancy rate for valley could be as high as 40%" http://66.54.5.40/mld/bayarea/2002/06/06/business/3409508.htm Meanwhile, after a brief cooling off in 2001, the housing market is red hot again: "March home sales in Santa Clara County â the heart of Silicon Valley â climbed 59 percent from the same month in 2001, according to the California Association of Realtors. The median price is up 7.2 percent to $535,000 since the end of 2001, above the 4.6 percent gain for the rest of the state." Source: May 8,2002 Bloomberg "Silicon Valley housing prices rebound " http://the.honoluluadvertiser.com/article/2002/May/08/bz/bz06a.html "The 1948 house in Los Altos where 89-year-old Laura Cox died in January is a "fixer-upper" by Silicon Valley standards, with nonmechanized garage doors and no air conditioning. Even so, a bidding war erupted over the two-bedroom ranch on a quarter-acre lot, and the house sold for more than the $995,000 asking price, said real estate agent Lorraine McIntosh. "The new owner will probably tear it down and build a new home. The value is mostly in the land," McIntosh said." Fleance
The new owner will probably tear it down and build a new home, she said. "The value is mostly in the land," McIntosh said A million bucks for 1/4 acre residential lot. Wow. http://www.sunwayco.com/news10.html
So how does one go about hedging the increased equity in their home? I purchased a house a few years ago and now have substantial equity in it.
Sell a forward contract on your house. Of course, you need to find a buyer who's happy to take delivery at some point far in the future. Really, I'm not sure.