The week’s news about the continuing moderate rise in home values will certainly bring a smile to Davis, Weber and Salt Lake County homeowners. But, as seems to be true for just about everything, there can also be some unintended consequences.
One group so affected are the folks who labor in the home loan industry—particularly when it comes to home appraisals. Appraisals come into the forefront when lenders are formulating their mortgage offers. Home appraisals are professional estimates of the value of the homes being collateralized. Lenders count on their accuracy to backstop a loan—to make its value recoverable in the event a borrower fails to repay.
That’s why steady rises in Davis, Weber and Salt Lake County home values have one consequence that’s less than helpful. It’s a non-issue as long as enough similar local homes have changed hands in recent months since home appraisals depend heavily on comparable sales to establish realistic property values. But if the buying and selling of nearby properties happen to have been sluggish, the only comparable sales numbers will reflect older transactions. And they might not fully reflect current market upsurges.
The possible result is that the amount agreed upon by buyer and seller might be higher than the appraiser sees reflected in the comparables—and even seemingly minute differences can be enough to quash a mortgage.
Since lenders really do like to create home loan offers that make buying possible, they do their best to keep track of the phenomenon. The disparity is formalized by Quicken Loans with their HPPI (Home Price Perception Index). The HPPI measures the difference between what homeowners seeking to refinance their home believe it is worth versus what appraisers can verify.
The very good news (at least nationally) is that the trend has turned toward harmony between the appraisers’ opinions and those of current and future homeowners. The numbers are different in every locale, but the move toward agreement is widespread. By the middle of last month, the gap had narrowed for the fifth month in a row—and is now within 1% of agreement.
Davis, Weber, and Salt Lake County home appraisals and mortgage offers are important elements in the home-buying process—but there are many more. It’s my job to help buyers and sellers put all the pieces together to ensure that the final transaction progresses along smooth, rational, and predictable lines.
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