This week I had the privilege of visiting with one of the top property appraisers in North Texas, Brad Edgar of Edgar Appraisal services.
The above photo was from an event I hosted while marketing a luxury property in the Ricks Circle neighborhood of North Dallas. Brad kindly agreed to come to my event and give a market update. When I announced Brad's involvement, the event garnered over 50 area real estate professionals to come and hear Brad's latest opinion of the market.
Mr. Edgar's profile is not unlike the E.F. Hutton commercials of the 1980s..."When Brad Edgar talks...people listen".
I was lucky to have Brad as a captive for about an hour this past Monday, and he shared the following information and opinions...
1. Appraisal Waivers
About 30% of contracts in Dallas and Collin County are being submitted with "Appraisal Waivers". This means a buyer commits to purchasing the property regardless of what the appraisal value is. Without this waiver, the buyer has the right to terminate the contract at no penalty if the appraisal value comes in below the sale price.
Brad mentioned the base market in Park Cities/Preston Hollow/North Dallas is up 8% since January of 2021. This increase in value is not accurately represented in "Sold" properties yet, so the comparables are not yet available to appraisers.
2. How Low Are the Appraisals
Brad said, in general, appraisals are coming in 5-10% below purchase price. What this means in practicality for buyers is...
if a buyer purchases a house for $700,000 and is financing with an 80-20 loan, when the property appraises for $700,000 the lender will give 80% of the value as the mortgage (560,000) and the buyer has to bring $140,000 as the down payment for the house.
In this scenario, if the appraisal misses by 10%, the appraised value would be $630,000. The amount the mortgage company would loan becomes $504,000. On the purchase price of $700,000 and the maximum the mortgage company will loan is $504,000...the buyer now has to bring $194,000 to close the loan, instead of only $140,000 if the property appraised for value. That is an extra $54,000 in real money based on the low appraisal.
3. What is the best way to protect yourself from a low appraisal?
Use an established lender. Use a lender with a strong local presence. These lenders usually have a pool of local appraisers that have a great working knowledge of trends in the area.
4. The Real Value is in the dirt, not the updates
When you are making your buying decision, consider more the value of the lot and location over cosmetic updates. The value of the lot will endure, the cosmetic updates depreciate on a daily basis. Edgar also said "this is the point where a trusted relationship with an experienced realtor comes in to play". Brad just shakes his head in disappointment when someone sells a new construction house at Walnut Hill and Webbs Chapel as "Midway Hollow".
5. Should a Buyer make an offer on a house based on the CAD value?
NO NO NO!!!!! The tax appraised value has no bearing on current market value. Savvy property owners will enlist the help of property tax firms to keep their tax values low. If a buyer is serious about purchasing, they need to listen to their trusted real estate expert.