That’s good for the seller, but what happens when it comes time to have that property appraised? Like the real estate market in general, the answer to that question all boils down to location, location, location. Worth what? Home price appreciation has slowed in the Chicago market. As tight supply lifts prices, some valuations fall short. Tight inventory of homes in Chicago market presents challenge for appraisals.
Real estate agents are still fretting about a lack of quality inventory in some parts of the housing market, and the shortage continues to drive up prices.
Mary Ellen Podmolik CHICAGO TRIBUNE firstname.lastname@example.org
Chip Wagner, head of A.L. Wagner Appraisal Group in Naperville, said he continues to hear complaints from real estate agents about appraisals not meeting the purchase price, but there are fewer complaints than there were in the last two years.
That may be the result of two factors. One, home price appreciation has slowed. Year over year, Chicago-area home prices were up only 2.5 percent in January, one of the smaller increases across the nation, according to the S&P/Case-Shiller home price index. And two, the inventory of for-sale homes in the Chicago area is down from a year ago, but the decline is nowhere as dramatic as it was. For instance, there were 36,575 homes for sale in the nine-county Chicago area in February, according to the Illinois Association of Realtors. That compared with 37,769 homes in February 2014 and more than 44,000 homes in February 2013.
Some areas are up, some are down. In Chicago, there were just over 8,000 properties for sale in February, compared with more than 8,500 a year earlier. Meanwhile in DuPage County, the inventory of homes for sale rose 9.3 percent from a year earlier, to about 4,400 listings. In North Cook County, inventory was up 4.6 percent from February 2014.
“Most areas I have been appraising are not undersupplied,” Wagner wrote in an email. “I see them more as balanced, with a slightly higher supply than this time last year.”
In Chicago, the number of listings in February meant the market had enough inventory to satisfy three to four months of demand at the current pace. A stable market typically has six months of inventory, so the lack of houses and condos for sale is creating some interesting appraisal scenarios, depending on the neighborhood, and even the block.
Pent-up demand that generally surfaces in the spring may put a strain on inventory in hot markets. That raises prices and makes an appraiser’s job more like that of a detective, trying to determine if the higher value is warranted.
Michael Hobbs, president of PahRoo Appraisal & Consultancy, recently found himself in that situation as he sought to pin a value on a two-unit row house in Bucktown that went under contract for about $745,000. Other nearby comparable properties sold in the previous six months went for less than $700,000.
He talked to the listing agent and found that there was a similar offer waiting in the wings from a different buyer, and a backup list of other interested people. He looked at how quickly properties were selling in the immediate neighborhood. He talked to agents active in the area to get a sense of transactions in the area now, not six months ago, and found out that the particular block of the row house was red-hot.
“You can’t measure that in a static environment like the MLS,” said Hobbs, who added sometimes he’s even called the prospective buyer, asking why they’re paying the contract price. “Sometimes the math doesn’t work. The challenge is adding qualitative and maybe not quantitative (data).”
In the end, Hobbs affixed a $730,000 value to the property, meaning the seller was going to have to come down on the price.
Joe Binder, of Binder Realty Consultants, said he hasn’t seen many problems so far this year with appraisals not meeting the sales price, which he attributes to sellers and their real estate agents being reasonable and not expecting too much when they list the properties.
But with fewer sales in his area during the winter, he does expect there to be fewer comparable properties to consider in the equation. That makes it even more important for a seller to pass along all pertinent information about the home and its upgrades to the listing agent.
Ideally, a seller should be home when an appraiser arrives, to fill in any blanks. “They know the most about the house,” Binder said.
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