An Appraiser's View

Do mortgage interest rates affect or effect appraised values? The simple answer is no, and yes. Confused? Let me explain. 
Assuming you are aware of how an appraiser arrives at his or her opinion of value, lets take a look to see if interest rates "affect" appraisal values. Affect is a verb and describes current action, which means something that AFFECTS the appraiser's selection of comparable properties, ie; the presence of a pool, the size of the house, number of baths, location, condition, etc., the appraisers reconciliation of the cost to build a similar home, or the appraisers selection of comparable rental properties. And although changes in the market can make the selection of more recent sales important, that is due to the price they sold at, which may or may not be from the interest rate the buyer received.
But do interest rates EFFECT appraised values? You bet they do. EFFECT is a noun, descriptive after the fact, so current mortgage interest rates AFFECT how much a buyer can afford to borrow, which EFFECTED how much they were able to pay for a home. This is similar to the current job market in a an area. A borrowers employment status AFFECTS how much they borrow, so if an area is depressed, this will EFFECT the values in the area. Understand? No?
Hmmm. That's ok, just try and think of it this way. Appraisers do not determine how much you will buy or sell your house for, or how much the bank will loan you against your house. We report current market conditions like increasing or decreasing values, supply, and demand, which AFFECTS the banks lending decision, and EFFECTS your buying decision.
One last thought. Did you know yo can get an appraised value based on what a property will be worth at a selected future date? It's called a *Prospective Appraisal. It's a handy tool when you are looking at flipping, renting for market appreciation, subdividing, spec building, or holding paper on a loan. One aspect of prospective appraising is determining where the market will be on the chosen prospective date, and historical interest rate trends are part of that equation. So as in all things involving the English language, prospective appraisals are the exception to rule. 

Up next. Math, the English method. 

*If interested in a prospective appraisal or you would like prospective appraising explained, feel free to contact me directly. 


Posted by Jeff Pickerel on August 6th, 2022 6:00 AMLeave a Comment

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The rhetoric most commonly seen on social media regarding home buying today is that it is harder to buy a house today than ever. While that may be true when comparing those who are in the higher income brackets or when comparing the ease of homebuying today vs. 3 years ago, in most cases it's the expectation of the home that has changed, not the affordability. Before you cry foul and stop following my blog, let me explain. I was raised in a lower middle class family, what most refer to as "the working poor". Even then people thought home ownership was out of reach for those in my parents income bracket. But not my parents. They were dreamers willing to sacrifice to reach their goals. When I was 10 my parents bought land in an unpopular rural area, and we lived in tents while our house was built. We couldn't afford a contractor so my Dad built our house himself, with the help of his children, ages 3, 10, 12, and 13, and a couple family friends with whom he was able to trade labor. It took more than a year. In case you missed it, in order to reach the dream of homeownership, my parents had to move to an area with lower values, then have us all live in tents, no stove, no running water, no indoor toilets, etc. while my dad built our house with his own 2 hands on the weekends and after work. Because this is what he could afford to do. My path to homeownership was easier. I was fortunate enough to find a foreclosure during a market downturn and by working two jobs, one full time and one part time, I was able to make the payments. My point is, when thinking about how difficult it is to buy a home vs. how you think or the "data" indicates it used to be, understand it has always been difficult for the lower middle class, but your issue may be an unwillingness to sacrifice as much as your parents and grandparents had to. Maybe it's because you have kids and don't want to subject them to having to go new schools, make new friends, or do without things. FYI. That sacrifice has shaped my entire life. Not the struggles, heck, I was 10 years old and got to camp for more than a year, it was amazing! No, the lesson is what stuck. I learned the basic principle of this country, which is if you truly want something, with hard work and sacrifice you can attain it. Life is simple. "When your dreams and goals are bigger than the obstacles that come before you, you will overcome those obstacles and achieve your dream and goals. " If you want to buy a house, figure out what you are willing to give up to get it. Happy house hunting!

Posted by Jeff Pickerel on July 9th, 2022 5:15 AMLeave a Comment

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