By Kenneth R. Harney
Saturday, December 31, 2005

What is your real estate worth in a market where unsold inventories of houses are turning into a glut and where price reductions are becoming routine?

That's the question right now in parts of Southern California, Arizona, Florida and New England, all of which are experiencing sagging sales and declines in appreciation rates. For most people, the ultimate answer about value will come from someone they may not see, much less know by name: the appraiser hired by the purchaser's mortgage lender.

For sellers, appraisers' opinions of property values in softening markets can be pails of ice water: Sorry, but your house is worth $100,000 less today than it was last spring. For buyers, appraisers' valuations can be deal-killers when the sales contract price is significantly higher than the appraisal and the lender demands a bigger down payment.

How do appraisers themselves see the shifting real estate sands ahead in 2006? And what advice do they offer for sellers, buyers and realty agents? Here's a distillation from a series of late-December interviews with veteran appraisers around the country. They offer practical insights for anyone taking the plunge in the early months of the new year.

Tops on the appraisers' list: Know your market sub-segment -- the general price band or neighborhood niche for your property. Frank Gregoire, vice chairman of the Florida Real Estate Appraisal Board and an active appraiser in the St. Petersburg-Tampa area, said the cyclical slowdown is well underway in the middle and upper price brackets of the Florida west coast, but not in the lower-cost, entry-level segments at $250,000 and below.

To stay in touch with movements in multiple sub-segments, Gregoire not only studies realty industry data on recently closed sales, but also talks to real estate agents who are grass-roots experts in specific areas and price bands.

"It is very important for me to have a lot of input from [agents] who I know specialize" in particular locations or types of houses, he said. Agents are on the front lines, they are in daily touch with active sellers and buyers, and "they really have a very good grasp of where things are heading." They can also tell Gregoire whether particular sale prices were influenced by exceptional circumstances -- a divorce, for example, or an estate sale where the heirs wanted the deal done fast.

That fine-grain information gets factored into the appraisal, putting perspective on sales-price variations in "comparables" he's selected for an appraisal project.

Tom Berge, head of an appraisal firm in Orange County, Calif., says that though many sellers appear to be unaware of it, there is currently "just about zero inflation" in many segments of the residential real estate market, with the exception of the low end.

That reality is a shock to some sellers and lenders, said Berge, "but as an appraiser I have no choice; I have to go with the comps." When the most recent comparable is always lower than earlier comparables selected for the appraisal, "that tells you a lot."

Berge said he ignores pressure by lenders or real estate agents to "hit the number" on the sales contract. But he points out a way for sellers, buyers, lenders or realty agents who think an appraisal is low to influence the final result, ethically and legally: "If you want me to adjust [the number], go out and get me better comps" that are truly similar properties that closed recently in the same vicinity, with the same size lot, amenities, etc., but carried a higher price.

"If people can show me comps that I missed, I will adjust" the appraised value. That "doesn't happen all that often," he adds, but it's a possibility that sellers or buyers should not ignore.

Christopher S. Call of Areas Appraisers Inc. of Fairfax County has this three-word piece of wisdom for buyers and sellers in softening markets: "Just be realistic."

As a buyer, don't expect sellers to bleed for you. Generally, they won't unless they absolutely have to.

Don't be greedy as a seller, unless you want to sit dead in the water for months without an offer. And don't blame the messengers -- appraisers or real estate agents -- when your generous, tax-free capital gain turns out to be slightly less than you planned on.

Kenneth R. Harney's e-mail address isKenHarney@earthlink.net.