I'm not suggesting that the real estate market has stalled out in Harrisonburg and Rockingham County, but in talking to someone in another part of the country (thanks for the insight, Laura!) we came to a realization that some markets have stalled out -- and it's not clear what will get them started again.

Laura and I realized that some markets are stuck in an endless loop:
Buyers can't buy because comps aren't available to support appraisals......because buyers haven't bought......but buyers can't buy because comps aren't available to support appraisals............

Some would be quick to blame lenders --- why are they holding back the market?  Buyer X wants to buy a house from Seller Y, and has written a contract to do so at a particular price.  Why then, is the lender denying the loan on the basis of the appraisal? 

Well, it's actually quite reasonable for the bank to want and need to protect their interest.  If they are going to invest $250k in a mortgage on a $300k purchase, they'd want to know if the house was only worth $200k.  If that were the case, they would have made a poor investment, and their collateral (the house) would not sufficiently cover their investment should the borrower stop making payments.

But you can likely see why this is frustrating for buyers and sellers alike.  Even though it is reasonable for a lender to want to know (via an appraisal) that a house has a particular value --- if a buyer and seller have agreed to terms, and the buyer is not overpaying for the house, why must the entire process be stopped in its tracks simply because there aren't any comps available to support an appraisal.

Here is a specific (though fictional) example of what this might look like, in a subdivision in Anytown, USA:

2008 sales prices: $250k, $255k, $260k, $255k, $250k, $255k, $255k, $255k
2009 sales prices: $250k, $245k, $245k, $245k
2010 sales prices: no sales!

Then, when a buyer and seller agree on a sales price of $225k in early 2011, they certainly think that everything should go quite smoothly with the transaction.  But if the lender can't find any comparable sold properties in the past 6 to 12 months that support , they will likely deny the loan on the basis of the appraisal. 

What are the buyer and seller to do?  How does a market get started again after a very slow spell, given that appraisals are required for loans to move forward, and that comparable sales are required for appraisals???

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Have any questions? Contact Scott Rogers at 540-578-0102 or scott@funkhousergroup.com