February Statistics Show Some Stabilization of Metro Denver’s Real Estate Statistics

Below is the “Market Overview” for February as published by the Market Trends Committee of the Denver Metro Association of Realtors (DMAR). It is for the 11-county “metro” area, which includes Elbert, Gilpin and Park counties.

One statistic omitted from the DMAR infographic is the median days in MLS, which fell dramatically compared to the average days in MLS. Defining metro Denver as a 23-mile radius of downtown Denver (not how DMAR chooses to define it), I find the average days-in-MLS for February to be 47 (up from 46 days in January) and the median days-in-MLS to be 24 (down from 34 days from January).

(Notably, the days-in-MLS statistics for the first several days of March are 39 and 13 respectively. We’ll check back in April to see how those statistics for March end up.)

That’s an important distinction, because what it tells us is that while there continue to be lots of overpriced homes sitting on the MLS, there are now enough right-priced homes on the MLS which are selling quickly to bring down the median days-on-MLS statistic.

This is a lesson which all sellers should take to heart — that if you price your home at or slightly below the market, you will sell your home quickly, but if you put it on the MLS at a hoped-for price that is above the market, it will sit on the MLS for a long time.

As I write this on Monday evening, these are the numbers of active Denver metro listings on www.REcolorado.com listed by days-on-market:

0-7 Days—610

8-14 Days—306

15-31 Days—478

32-60 Days—442

61-90 Days—193

Over 90 Days—743

We agents refer to listings that have been on the MLS over 30 or 60 days as “stale,” and those are good prospects for getting a low-ball offer accepted. Buyers can certainly be confident that they won’t encounter a bidding war for any listing that has been on the market more than a couple weeks — unless there was a recent price reduction. If you want to avoid bidding wars and get a good deal, ask your agent to send you only listings which have been on the MLS over 10 days.

Meanwhile, sellers need to recognize that if they overprice a home and later reduce the price to make it sell, they typically get less than if they had priced the home correctly.

For Jefferson County residents, here is the above analysis as it relates to Jeffco:

These are the numbers of active Jeffco listings on REcolorado by days-on-market:

0-7 Days—150

8-14 Days—62

15-31 Days—92

32-60 Days—82

61-90 Days—25

Over 90 Days—141

Here are the charts adapting that DMAR graphic to Jefferson County:

Just Listed: Solar-Powered Golden Home in Village at Mountain Ridge with Walkout Basement

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This solar-powered home at 359 Canyon Point Circle was a model home for the Village at Mountain Ridge, the subdivision west of Highway 93 backing to the Mt. Galbraith Park. (There’s a trailhead to the park’s 5 miles of hiking trails within the subdivision.) It was just listed for $1,595,000. The seller has made many improvements to the home since buying it in 2002, including a total renovation of the gourmet kitchen and master bathroom, plus adding 11.5 kW of solar panels which meet all the electrical needs of the home. The main-floor deck was also completely rebuilt with composite decking, metal railings and a breakfast bar for enjoying the sunrises over South Table Mountain and the City of Golden, which are visible even from the walk-out basement. A walking path near this home allows children to walk safely to Mitchell Elementary School via a pedestrian bridge that crosses the highway. To appreciate all the features of this 5-BR/4½-bath home, take the narrated video tour (with drone video) at www.MountainRidgeHome.com, then come to the open house this Saturday, March 11, 11 am to 1 pm.

Connecticut Launches “Green Liberty Bonds” Program to Fight Climate Change

   The Washington Post’s “Climate Coach” recently wrote his column about Connecticut’s program which, like War Bonds (which raised billions of dollars to fight World War II), aims to create a pool of millions of dollars to finance small solar energy systems. Here’s a link to that column. It links to another such program, “Raise Green.”

Colorado Now Regulates the Installation of Radon Measuring Devices

By now, most home sellers and buyers should be aware that radon, a naturally occurring carcinogenic gas, is prevalent in Colorado. Every buyer’s agent should be advising their client to hire an inspector who, in addition to inspecting the home for hidden defects, can perform a radon test.

Radon, at any level, can cause lung cancer, and the EPA has established an “action level” of 4 picocuries per liter (4 pCi/l) above which mitigation is recommended. According to www.cdc.gov, the EPA estimates that radon gas is responsible for 21,000 lung cancer deaths per year, about one-sixth of the annual lung cancer deaths (cancer.org). However, if the radon level is above 4.0 pCi/l using any testing device other than a CRM (Continuous Radon Monitor), such as charcoal or E-perms, a second test is required immediately after, and those results are averaged with the first set of results to determine if mitigation is recommended.

Radon is an odorless, colorless and tasteless gas which is a decay product from Uranium U235. It further decays into polonium, which is what’s harmful to your health. The final decay product is lead.

Home inspectors are still not licensed or regulated in Colorado (something I have argued for), but as of July 1, 2022, only a licensed radon professional can install an approved radon testing device as part of a home inspection, and must follow explicit and detailed instructions for doing so.

Fortunately, my go-to home inspector, Jim Camp of Metropolitan Home Inspections, obtained his radon license and gave us a PowerPoint presentation on the subject at a recent office meeting. Here’s a link to his presentation.

Prior to licensing, any inspector could install the 48-hour testing equipment in a home and leave behind a flyer requesting “closed house conditions.” The device makes hourly measurements, so any violation of those rules would be obvious from looking at hourly variations in the measurements. Only the CRM has hourly results of the concentration levels along with temperature, barometric pressure and relative humidity reading.

But now there are several specific procedures that must be followed, including getting signed approval from the client to conduct the test, and providing advance notice of the test to the owner or occupant. The latter form states that closed house conditions must be initiated at least 12 hours prior to testing, not just throughout the 48-hour testing period.

Another rule is that if the basement footprint exceeds 2,000 square feet, two radon measuring devices must be installed. There are detailed instructions about where a testing device can and cannot be positioned.

Any air exchange systems, such as whole house fans, moisture mitigation systems for homes with structural wood or concrete floors, window air conditioners and box fans must be turned off. In addition, the garage overhead door must remain closed along with the windows and exterior doors including the passage door to an attached garage. An existing radon mitigation system can remain on during the test.

Environmental Film Festival Expanded My ‘Woke’ Credentials, But That’s a Good Thing – Better Than ‘Unconscious’

I’m writing this column in the immediate aftermath of attending the Colorado Environmental Film Festival. I was only able to watch 20 or so of the 90-plus films featured during the sixteen 2-hour sessions, but I plan to watch others this week. (You can access all the films at www.CEFF.net for $75, which gives you seven days to view any collection you log into by Sunday, March 5.)

My favorite films were: The Sacrifice Zone; Wings over Water; Heart of Maui; Somehow Hopeful; Earth Girl; The Witness Is a Whale; and A Rally for Rangers.

Many of these films raised my consciousness regarding different issues facing humanity and America, which got me thinking about the term “Woke,” which is applied negatively against those of us with similar awareness of certain issues. In the parlance of the MAGA folks, I’m part of the “Woke mob.”

Obviously, the term is adapted from “awake” or “awakened.” One thing for which we can thank the previous administration is that the division it spawned awakened people like me to portions of our history (and our present) of which we may have been less aware. I’m thinking of books like The 1619 Project and Caste,  which taught me things I did not know about our nation’s sad legacy of enslavement and racism, which are at the heart of America’s “great experiment.” For example, I didn’t realize that the 13th amendment abolished slavery, “except as a punishment for crime whereof the party shall have been duly convicted,” an exception that was exploited throughout the former confederate states by convicting Blacks of petty or false crimes and imprisoning them so that the prisons could lease them to plantation owners to continue their enslavement.

Yes, I’m awake to many aspects of our history to which the MAGA mob is (and would like to remain) unconscious. I’m awake to the environmental injustice suffered by the minority communities close to the Suncor plant in north Denver, which was the topic of a CEFF film. I’m awake to the broken promise of “40 Acres and a Mule” which underlies the calls for reparations to descendants of the enslaved.

I prefer “woke” to “unconscious.”

National Association of Home Builders Reports on What Buyers Want in a New Home

In a February 14 release, the National Association of Home Builders (NAHB) reported that the experience of Covid-19 and mortgage interest rate fluctuations has resulted in homebuyers sacrificing features for affordability. Buyers have also changed the features which they prioritize.

The NAHB reported that the size of new homes increased in 2021 as a reflection of the pandemic’s increase in work-at-home and remote schooling space requirements, but that house sizes fell slightly in 2022, as did the demand for three or more full bathrooms and 3-car or larger garages.

The organization predicts that home sizes will increase this year because of a predominance of wealthy buyers less affected than other buyers by the increase in mortgage rates, but that will change in 2024, if mortgage rates moderate and more buyers reenter the market.

“Home buyers are looking more and more to their homes to provide a sense of well-being,” observed Donald Ruthroff, AIA, founding principal at Design Story Spaces LLC. “They want their homes to support their day- to-day health — physically, emotionally, and mentally,” as quoted in the NAHB release.  

Below is a chart showing the results of an October 2020 survey of 1,240 respondents by John Burns Real Estate Consulting, LLC. The answers were in response to the question, “Which of the following would you require of a home for you to consider it a healthy home.”

Given that the survey was done only six months into the pandemic, it’s not surprising how many responses related to a healthy environment and lifestyle. The survey was done long before the recent brouhaha over the health effects of natural gas cooking and heating, or I would expect “all-electric home” or “no natural gas” to have been among the choices offered to respondents.

The survey results were included in a research report from the New Home Trends Institute.

The release also described a trend toward “biophilic design,” a term that I had not seen previously. Basically, it refers to a preference for natural materials and environment. Lots of natural light and real wood finishes would contribute to such a feeling. It has been demonstrated that exposure to nature and natural home design reduces stress.

In November, 2022, the University of Maine unveiled its 600-sq.-ft. “Bio3D” home made using forest-derived cellulose nano fiber (CNF) technology to 3D print the floor, walls and roof. These modules were then assembled at a site on the UMaine campus. It is a “biophilic” alternative to the concrete 3D-printed homes which I featured in my Nov. 5, 2020, and Dec. 15, 2022, columns, available online at www.JimSmithColumns.com.

The site ConstructUtopia.com, in a January 2021 article clearly influenced by the pandemic, listed “4  healthy home features that home buyers care about”:

1) Good indoor air quality. This is especially needed in a well-insulated/air tight home, where a suitable appliance would be a Conditioned Energy Recovery Ventilator (CERV), which I wrote about in my Feb. 9, 2023, column.

2) Quiet, soothing bedrooms. The report suggested “thoughtful lighting, better soundproofing” and a nearby “snore room” for the offending or the suffering partner.

3)  Easy-to-clean surfaces.

4) Outdoor recreation areas.  Over three-quarters of survey respondents said they were focusing more on their physical health, and nearly as many (69%) said they’re focusing on their mental health. Exercise addresses both needs.

A September 2022 article on the same website featured a Mississippi company called Modern Mill which uses discarded rice husks to create a wood-alternative building material called “Acre” because one pallet of the product reportedly saves one acre of rainforest. Rice is a major agricultural product in the South, and rice husks would otherwise go to a landfill. Here are a few pictures of the Acre product from https://modern-mill.com/decking/ used as decking and siding, which, like real wood, can be stained:

NAHB reports a big jump this year in the demand for exterior amenities such as patios, decks and porches. Outdoor kitchens weren’t mentioned but could have been, from my own observation.

Home offices also appeared on the list of most wanted features for the first time this year, again a result of the pandemic.

Donald Ruthroff (mentioned above) noted that by making homes smaller, more money can be spent on details and finishes such as a luxurious bathroom, laundry rooms, walk-in pantries and hardwood flooring.

Boxabl, the Las Vegas Manufacturer of ADUs, Has Ramped Up Production

Manufactured housing started before most of us were born, if you include mobile homes. Modular housing, in which components of a building are put together in a factory and then assembled onsite, is also a part of early housing history. I remember attending Expo 67 in Montreal, where one of the exhibits (but not an attraction to be toured) was “Habitat 67,” a funny looking 148-unit apartment complex adjacent to the 1967 World’s Fair site in which concrete apartment modules were held together by cables.

Then, in 1997, I purchased a home in Golden’s Mesa Meadows subdivision which I learned later from a neighbor was built in a Ft. Morgan factory and assembled in one day on the foundation in Golden. Knowing that, I noticed the tell-tale beam in the ceiling which was where the two halves of the one-story home were attached to each other. Here’s the MLS picture of that home (798 Cressman Ct.) which sold last June for over $1 million.

It was explained to me that manufactured homes are often of higher quality and better insulated, because they are done on a factory floor where there is better supervision, resulting, for example, in better insulation. The exterior walls were all made from 2×6 lumber instead of 2×4 lumber to better withstand the stresses of being loaded, unloaded and moved on the building site. Indeed, my Mesa Meadows house was a good one, although I expect the current owners (the third since I sold it) don’t even know that it was not stick-built on site over several months, like its neighboring homes.

Next came the “tiny home” movement in which complete homes were often built on a factory floor, wheeled on a trailer to someone’s lot, and then put onto a foundation. Some tiny homes were put into service as temporary homes for our unhoused population, formerly referred to as “homeless,” on vacant land or in church parking lots — a good idea, but without a conventional connection to a sewer line. Here are three tiny homes displayed for sale on https://www.tumbleweedhouses.com/:

About that time the ADU movement took off, with many if not most cities and counties changing their single-family zoning laws to allow the creation of “accessory dwelling units.” These could be walk-out basements converted to an apartment, but often they were apartments created above detached garages or stand-alone buildings in backyards. The typical ADU ordinance requires three things: 1) the ADU cannot exceed a certain size, 2) it has to have its own off-street parking space, and 3) the property owner has to live in either the main house or the ADU and not rent out both units. Some jurisdictions are considering loosening these rules. Here’s the City of Golden’s web page about their ADU rules: https://www.cityofgolden.net/city-services/accessory-dwelling-units/

Several local businesses were created to cater to this new construction opportunity, including Verdant Living, 303-717-1962, owned by John Phillips. His “backyard bungalows” are manufactured in Nebraska and meet local code requirements. You can visit www.VerdantLiving.us for more information.

A company called Villa started building ADUs in a factory southeast of Los Angeles, after California legalized ADUs in 2020. This company delivers and installs its units across the state, with prices starting at $105,000 plus as much as $200,000 for delivery, infrastructure costs, foundation, and installation. Here’s Villa’s website: https://villahomes.com/units/

There’s a Las Vegas startup called Boxabl, whose competitive advantage is that its ADUs fit on a standard flatbed trailer and then unfold into the simple unit shown here or to larger homes, such as the  3-bedroom, 2½-bath, 2-story home (assembled from three units) shown below.

It’s a father-son company which has not yet gone public. It was clearly inspired by the factory concept of Tesla, not surprising since the son drives a Tesla. Notice the Tesla wall charger and the Tesla battery unit above it on the exterior of the 2-story building below. That picture is from the International Builders Show last month in Las Vegas.  It drew a lot of attention, and the company now has a waiting list over 100,000, even though it can’t deliver more units until regulators approve its construction.

The company did deliver 156 of its 400-square-foot “casitas” to the Federal government for use in Guantanamo Bay, which helped it build its factory and develop its technology. The company received that multi-million-dollar contract based on its proposal, even though the government knew they hadn’t built anything yet. 

After completing that contract, Boxabl got a contract from an Arizona company to build workforce housing. Currently the firm is only building and, presumably, stockpiling its 400-square-foot casitas as it perfects its current factory and equips a second factory next door.

Learn more at www.Boxabl.com. 

‘Everything You Need to Know About the Wild World of Heat Pumps’

That’s the title of an article in a February 14th post from MIT — https://www.technologyreview.com/2023/02/14/1068582/

I have written about and provided my own explanations regarding how heat pumps differ from forced air furnaces and traditional A/C systems, but the article cited above goes the extra mile.

If you’ve spent a night in a hotel or motel, you have probably slept in a room that was heated or cooled by a heat pump, because invariably that’s what those units are which you saw and controlled under each window.

In my other post today, heat pumps provide the heating and cooling for every Boxabl home. They are also what heats and cools many electric vehicles, since they require less battery power than conventional electric car heaters.

I was surprised to hear that heat pumps were invented in the 1850s but only started being used to heat and cool homes in the 1960s. It took the global climate crisis and the need to reduce our dependence on fossil fuels to make them the hottest trend in new homes.

Speaking of new homes, however, I lamented as recently as last fall that I haven’t found a single new Denver area home builder which has abandoned gas-based home heating or even offers an upgrade to heat pumps. If you know of one, please tell me, because I’d be happy to promote that home builder in a future column.

The MIT article provides some useful information, including about the rebates being offered for heat pump installations. It also debunks the myth promoted by fossil fuel interests that heat pumps don’t work in colder climates. They are actually in use from Alaska to Maine, where, for example, my sister in Kingfield, Maine, installed a heat pump in her home to save on her fuel oil bill. Her fuel oil vendor told her that the adoption of heat pumps by her neighbors has noticeably reduced his sale of fuel oil in that rural community near the Canadian border.

According to the article, 60% of the homes in Norway are heated by heat pumps, as are 40% of the homes in Finland and Sweden (where another of my sisters lives).

“Wherever you look,” the MIT article concludes, “the era of the heat pump has officially begun.”

Why Any Denver Seller Would Be Smart to List With Golden Real Estate

Choosing the best agent and/or brokerage for listing your home is no small matter. For most people, their home sale or purchase is the biggest transaction of their life, one they would want handled by an experienced and resourceful agent and brokerage.

For many sellers, perhaps even most, the decision seems all too simple. We all have a relative, classmate or friend who holds a real estate license, and there’s a compulsion to use that person, or, to put it differently, a fear of upsetting or insulting that person by using someone who might, in fact, do a better job.

At the end of this article I will suggest how to navigate those waters, but first let me lay out the argument for using one of our great agents at Golden Real Estate.

Let’s accept as a premise that any listing agent’s job is to maximize exposure of your home and thereby get the highest possible price for it, perhaps with competing bidders driving the final price above the price at which it was listed.

Golden Real Estate’s “value proposition” is all about maximizing exposure of your home, beginning, of course, with featuring it in this column. We don’t have a featured listing in this edition, but regular readers know that one or more new listings appears here nearly every week. This column/ad appears in more than just this newspaper. It’s in three Jefferson County weekly newspapers — the Golden Transcript, Jeffco Transcript, Arvada Press  — as well as in every metro area edition the YourHub section of every Denver Post. Altogether, this ad exposes your home to nearly 200,000 newspaper readers — a great demographic!

The Denver Post version of this ad is then emailed to more than 800 subscribers, about half of whom are fellow agents. The articles and featured listings are also posted on our blog at www.GoldenReblog.com and are archived at www.JimSmithColumns.com

In addition, we create a custom website for every listing, the URL for which is included in the “featured listing” article. On that website, as on the MLS, we post our magazine-quality photos plus a narrated video tour, as well as the open house information. The video tour is hosted on YouTube, which provides additional exposure, and we promote the listing and every open house on our Facebook page, which is www.Facebook.com/GoldenRealEstate1.

Just as important as maximizing the number of people who learn about your home is making sure that the information is as complete as possible. We enter every possible bit of information on the MLS, instead of completing only the required fields. That means that instead of just entering “public remarks,” we enter a description of every room in the house, including dimensions, flooring, closet information, view out the windows, ceiling fan and other features that add to the sales pitch for your home. This is not common practice among the majority of agents.

As you may know, listing agents can double their commission by not having to share it with a buyer’s agent. To that end, your agent might hold your home off the MLS for some period a week or two (and sometimes even longer!) in an attempt to find a buyer on their own. This is commonly done by putting a “coming soon” sign in your yard and advertising it as “coming soon” on websites such as NextDoor.com or craigslist.org. The listing agent might then convince a seller to go under contract with that first buyer and put the home on the MLS as “Under Contract” without it ever being listed as “Active.”

In 2017, there were 2,781 homes listed as “Sold” on REcolorado.com, the Denver MLS, with zero days on market. That means they were never “Active,” and therefore never exposed to the widest possible number of buyers. Not surprisingly, 19% of them sold for less than the listing price, and only 19.7% of them sold for more than the listing price.

By comparison, 4,007 homes were on the MLS for 2 days before going under contract. Among those sales, only 12.2% sold for less than full price, and 59.1% of them sold for more than full price. At Golden Real Estate, we have found that 4 days on market is the “sweet spot,” for the length of time it takes to attract the number of buyers that allows us to obtain the highest purchase price for our sellers.  Just last week, I had a listing which could have sold for $15,000 less than listing price on the second day, but we waited until day 5 and got it under contract for $11,500 over the listing price. Half of Golden Real Estate’s listings in 2017 sold at or above listing price, and 3 of them sold for more than 10% above listing price.

Above, I mentioned that a listing agent can double his or her commission by not having to share that commission with a buyer’s agent. At Golden Real Estate, it is our policy to have what’s called a “variable commission,” meaning that we reduce our commission when we sell a home ourselves.  Based on my own sampling, roughly 5% of the listings on the MLS are double-ended, but of those homes that sold last year with zero days on market, over 50% of them were double-ended, and less than half of those reduced their commission for doing so. When you interview a listing agent, ask if he or she will reduce their commission if they don’t have to share it with a buyer’s agent. If you ask, the agent will typically agree to do so, but I think you’ll find that most agents hope you won’t ask. At Golden Real Estate, we offer that discount without you having to ask for it. It’s on our printed list of services.

Now, most people who sell their home are also going to buy a home, and you should consider using the same agent who lists your home to help you buy your replacement home. Why? Because you should get a discount on your listing commission in return for allowing that agent to make a commission (paid by the seller) on your purchase. You sacrifice that opportunity when you don’t have a buyer’s agent and deal only with the listing agent on your purchase.

Too many buyers think they will get a better deal if they purchase a home without a buyer’s agent — that the seller saves that 2.8% co-op commission. But that’s not the case. Unless there’s a variable commission (and I already explained that only 15% of listings have a variable commission), the only person who profits from you not having a buyer’s agent is the listing agent, not the seller. In most cases, you’ll do a whole lot better by having your own listing agent earn that 2.8% commission on your purchase and discounting his listing commission by, say, 1%.

So, what about that friend or relative who expects you to hire him? Tell him/her that you want to use Golden Real Estate, which has agreed to pay him/her a 25% referral fee.

Buyers Should Use Us, Too!

I already mentioned that your listing agent should be your buyer’s agent, too, but if you are buying without selling, or have already sold your home, say, in another state, here are some reasons you should hire an agent from Golden Real Estate to represent you in the purchase of a home, whether a resale or a new home.

You need our advice on what to offer and you especially need our help if you find yourself competing with other buyers. We have a moving truck, which is free to you, but we also can offer it free to the seller as an incentive for them to accept your offer over that of another buyer. We have excellent home inspectors and loan officers, and you’ll appreciate our closing gift, which is a free energy audit of your new home.

Negotiation skills are needed not just to get under contract, but when it comes to negotiating inspection, appraisal or other less common issues. This is a particular strength here at Golden Real Estate.

Buying a home can be a tricky proposition, so don’t go it alone, and don’t put your trust in the listing agent, who isn’t looking out for your interests.

Buyers & Sellers Ask: Why Did the Appraisal Come in at Exactly the Contract Price?

Real_Estate_Today_bylineWhen purchasing a home with a mortgage, one of the major hurdles for buyers in getting to the closing table concerns the home appraisal. The lender hires the appraiser – at the buyer’s expense – to make sure that the home is worth what the buyer has agreed to pay for it.

More often than not, the appraisal comes in at exactly the contract price, which understandably seems a little fishy.  Typically, when the buyer asks me why, I explain that the appraiser always gets a copy of the purchase contract and therefore knows his or her target valuation. Once an appraiser can justify that target, there’s no need to identify additional value. That’s been my hypothesis anyway, but since it’s only a hypothesis, I posed the question last week to several experienced lenders with whom I have long-standing relationships.

Bernie Bernfeld of Wells Fargo (303-273-6373) responded as follows: “My short answer is that with so much scrutiny on appraisers and their valuations due to past abuses in some areas of the country, the appraiser will generally not assign more value than is necessary to support the sales value even if he knows the property may be worth more. This conservative approach satisfies the loan underwriters and those reviewing the appraisal while still supporting the buyer’s accepted offer.”

Jim Spray, a mortgage broker specializing in reverse mortgages (303-403-8168) said the following: “One should keep in mind that an appraisal is simply a valuation tool for lending purposes; it is nothing else. It may or may not reflect the actual market value,  which is what an independent party (the buyer, in this case) is willing to pay.  This may not reflect the value of an appraisal that is not associated with a purchase. In large part, an appraisal is just a tool for lenders to use to help prevent fraud and prove they are making sound lending decisions.”

Scott Lagge of Eagle Home Loans (303-944-8552) gave the longest response, making several interesting points.  He wrote: “Appraisals come in at value because appraisers don’t want to deal with appraisal objections from the real estate agents, their buyers and sellers, or the buyers’ lenders.

“When an appraisal comes in below the contract price, the first ones to cry foul are the real estate agents. They immediately question the appraiser’s ability, and put pressure on us lenders to fix it.  The agent send comps to the appraiser or lender, arguing their position, and wanting the lender to challenge the appraisal.

“So the extra work for the appraiser begins. They have to fix or defend their appraisal.

“Conversely, if the appraisal comes in high, especially if it comes in way higher than the contract price, there’s a concern on the part of the seller that they are leaving money on the table. This was more common in years past when sellers had access to the appraisal.  You can imagine being a listing agent in this situation. You’re selling a home for $400,000 and the appraisal comes in at $450,000. Bad deal for that seller — and for their listing agent!

“In either of these situations, the pressure is being put back on the appraiser to fix it.

“Let’s be clear, all lenders have a legitimate process for challenging an appraisal, and we have to prove that there is a material defect in the appraisal in order to rebut it.  We all have an internal or external appraisal management company that assures everyone is coloring inside the lines.  In other words, only valid challenges are accepted these days, but that doesn’t eliminate the pressure on us as professionals to explain why the value came in low or high to the consumer.

“So, coming in at value is the appraiser’s only sure-fire way to avoid scrutiny from clients, lenders and agents, thereby avoiding the extra work of defending and/or redoing the appraisal.

“The easier answer is that a home is worth what someone is willing to pay for it in an arm’s length transaction.  If you have a contract price of $300,000 and a buyer and seller have agreed on that price, once that transaction closes and records, it is officially worth exactly $300,000 and becomes a valid comp for future transactions.

“So why would an appraiser state anything different than the contract price, assuming he can justify it?”

[End of lenders’ responses]

I found it necessary once to challenge a low appraisal, and I was successful.  It was for a Golden area purchase, and the appraiser was from Castle Rock and clearly didn’t have geographical competence, because he checked the box indicating that the housing market was “stable” instead of “rising,” which was obvious to anyone.  I was able to point out other factual errors, and the appraisal was recast at the contract price.

Any of the above mortgage lenders would be happy to answer your questions on this topic. Call them!