“If 2020 was a comp property, it would be the house in your neighborhood that caught fire and almost burned to the ground. But then a GoFundMe campaign caught the attention of a YouTube influencer who rehabbed it into the next location for The Bachelorette.” So said Sarah Wheeler, HousingWire Editor in Chief in a recent edition.
Cyclical is the very nature of the real estate standard, which is a standard always in a state of flux. Change is inevitable; sometimes fast and furious, sometimes slow, but always a moving target. Like competing in hurdles at a track meet, several major hurdles must not only be jumped but cleared fully, to make it flawlessly to the finish line in the sale and purchase process.
The quote from Sarah points out one of the more difficult hurdles to overcome in today’s real estate marketplace: comparable properties and appraisals. Hardy, potential home buyers are willing to face any valuation challenges presented to reach their goals, as buyer demand remains at a high point.
The home appraisal is one of those major hurdles where buyer and seller are both deeply affected by, and heavily invested in, the outcome. Unless a sale is a cash purchase, a buyer will most likely need to qualify for a mortgage loan - and so the house will need to qualify as well, in the form of appraised value.
That is why the home sales being used as “comps” (comparable homes sold within the previous 6 months or so) which are used as a guideline for establishing current value, is an important issue. Affecting both current and future home prices, these previous sale prices weigh heavily in determining the amount of cash a lender will agree to lend against the property. When the normal cycle is as disrupted as we experienced through most of 2020, that data, which carries so much of the weight in the computations of an appraisal, can skew market prices and adversely affect current and future sales.
The conditions of the sales that took place during almost all of 2020 were under severe special circumstances. Those affected every aspect of the process in ways that current sales aren’t being affected. Sarah Wheeler's comment captures those circumstances quite succinctly. Current market conditions are not a continuation of the restrictions, requirements, and particularly the state of mind of the seller or buyer. Appraisal of current market offerings must consider those circumstances and give them weight when evaluating property sales currently taking place.
Reflective of those differences, this past July, amid the rocket's red glare, 7237 happy people celebrated the closing of their new home in the Colorado front range area. Having chosen from among the 8343 properties offered for sale, they made their choice within an average 17 Days On Market. July 2020 average home price of $531,914 was exceeded by sales this July, where the average selling price was $655,782.
Although third-quarter sales figures were down just under 2%, RE/MAX Alliance Associates continue to work diligently to assist buyers and sellers in coming to mutually satisfying agreements. As the number of people seeking to purchase remains far greater than there are homes available to choose from, remember that this condition existed long before a pandemic began to affect the Front Range real estate markets. Trends that indicate demand, particularly in suburban and rural areas, will continue to climb and therefore, expect home prices, although the spike may slow, to continue moving upward. Climbing prices affect affordability, something that has been counteracted by low-interest rates up to now. There may be some fairly serious white-water rapids to navigate as we head into the last quarter of 2021.