It hasn’t happened yet but pretty soon some of these listing prices will be LOWER than some of the closed sales. Trust me when I tell you that when REOs comprise 30+% of the closed sales the competition between these lenders to underprice their competition will be significant.
During an increasing market an appraiser should be weighting pendings and listings if they can establish the relationship between the list prices and the closed prices. This is particularly true when bidding wars are common. The appraisers can see there is a trend toward increases and they have no way of knowing how high it will go. Well, the same applies – only in reverse – when the market is declining. The (lower) pending sale prices point the direction and the appraisers are supposed to be appraising toward the ever-reducing lower end of the range. That’s what I meant when commenting about how many appraisers have never operated in a declining market.
What this means is that even though a lender might allow 6-month old sales data in an appraisal report, they’re not going to allow those sales to be given undue weight because the market conditions then were better than they are now. A lot of loan originators and agents are going to be shocked when they start seeing this. They may find that exceptional buyer and come to a contract price and they may think that based on sales from a few months back that the loan is a lock, right up until the lender cuts the loan amount back because of current listing activity.
Lenders really only pay attention to appraisers and support the use of appraisals when the markets are in decline and it’s their money that’s on the line.