Appraisal Pressure
During the real estate boom of the last few years appraisers have been under pressure from realtors and home owners to inflate the prices of homes. Seller’s agents and home owners obviously wanted a higher price so that they could make more money. Banks were largely silent and complicit in this home price inflation because they were making money just writing the loans. But, boy how things have changed.
Because banks have been bitten recently with balance sheets full of junk loans written on inflated properties, there is now pressure on appraisers to deflate the prices of homes. Of course, banks only want to protect themselves from the current situation in which homeowners find themselves owing more on their house than it is currently estimated to be worth. These loan holders comprise the large majority of people just abandoning their homes to foreclosure.
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The pressure to deflate homes and protect the banks is so strong that one major bank has downgraded the entire State of California for home loans.
For anyone considering buying a house now, the way to avoid this situation is to buy quality. In real estate quality is always and only defined by one thing– location. But, what about the house itself. Well, in the short term the house itself may matter, but in the long term the only thing that matters in real estate is the property itself, the location, location, location.