It's hard to establish a price

I'm working with several buyers right now and, of course, they want my advice on prices for houses that they might make offers upon. Now you might think, "just tell them to low-ball them all." That seems to be a trend lately, but it is not a winning strategy most of the time, especially with foreclosed homes. Banks have changed their pricing strategies and are now pricing very close to what they will accept for the foreclosed houses that they have in inventory. So going in a low-balling an already low, foreclosure price is just a waste of time. It's particularly a bad strategy on houses that have multiple offers. The winning bids on those houses is generally a little above the asking price, which leaves all of the other bidders wondering why the bank didn't take their low-ball bids - well, duh.

What's particularly hard these days is providing pricing recommendations for normal, owner-occupied houses on the market. Most are priced a bit above the market average, which is itself subject to influence from foreclosed houses. So, recommending something less than the asking price in these cases is the right thing. However, it is a much finer balancing act to reach just the right price for one of these homes - one that the owner will accept (begrudgingly most of the time) AND that an appraisal will support. The appraisers are the main problem right now, since they are still appraising with future value drops in mind and they are taking more and more of the foreclosed home sales into account in their calculations.

You really end up in a quandary if the appraisal comes in $10-20 thousand less than what you have bid. That's not all that unusual these days. There is a saying in real estate that a property is worth what someone else is willing to pay for it. That would be true if mortgages and appraisers weren't involved - if real estate were a cash transaction. But it's not. So, the question on an appraisal that comes up short is, "who is gong to make up that difference?" Usually the seller will be expected to concede some or all of the value difference, but sometimes a compromise is reached where both sides contribute to the shortfall in appraised value. I've had sales go both ways. I've also had sales fall apart because no solution could be found and the disgusted seller just took the property off the market.

Now, I understand that appraisers are just doing their jobs, and factoring in the continued devaluation that the market is still experiencing. I've had to tell sellers that "this is all you can get in the market today" or buyers, "I know you really like the house and feel that it is worth what you bid, but the bank takes an impersonal, business-oriented approach and this is all that they will loan on it." It's a very disappointing position to be in from either side of a deal. Will those values come back some day to support the price that the appraiser couldn't get to right now? Of course they will, but how long that will take is anybody's guess. So. I'll keep plugging along, doing the best that I can to figure out what a fair price would be for specific homes and then working out compromises when the appraisals come in. I just hope this whole housing mess bottoms out soon, so that we can get back to a more sane approach to things.