I’ve seen a lot of folks predicting a lot of things about the housing market. First, know that real estate is local. Market conditions in other parts of the country will change differently than our area. I feel it’s impossible to “peg” the market in general as far as what’s going to happen. However, in our area, I see a lot of optimism for this year. Let’s take a look at the factors:

There hasn’t been a lot of market activity over the past couple years. Buyers have been waiting for a good deal. Foreclosures are moving briskly but there’s an ever-plentiful supply. This has made it difficult to impossible for existing home owners to move. This pressure has created pent-up demand in the market.

Mortgage rates are extremely low right now. Close to the levels they were back in 2005 before Greenspan messed them all up. Lenders have tightened restrictions but those that can buy will be getting a good deal on loan rates.

There is increasing national attention being put on the housing crisis and the extreme number of foreclosures. The government may be stepping in at some point this year to stem the tide of foreclosures. Once the foreclosures slow, values will begin to rise.

Rentals are now getting harder to find and rent prices are rising. Rent prices are now getting higher than the cost of owning a condo or single-family home. This increases the number of buyers in the market as renters decide it’s better to buy than pay more in rent.

We’re now entering the spring market - a naturally busy time. This should reduce inventory as buyers begin to take up the slack. If the number of foreclosures begins to slow, we’re going to see a further reduction in inventory for the fall. This points to the possibility of an uptick in the market beginning this fall. I predict conditions will remain flat during the spring and summer as the existing inventory begins to be eaten up by buyer demand but this fall we should see a slightly better market.

What does this mean for home buyers? If you haven’t yet entered the housing market, now is the time. You want to buy when the market is at or close to bottom - not after it has started to recover. If you’re looking for the point at where there’s the biggest inventory at the lowest prices, put yourself in the position to purchase this spring and summer.

If you’re in the market to buy or sell a home, eventually you’ll encounter an appraisal. Most folks know that it deals with home values but many might not understand exactly how important a role the appraisal plays in the home buying process.

First it’s important to distinguish between two different types of home value estimates. First, the report a real estate agent often does for a home seller in order to arrive at a list price for the home is commonly known as a Comparative Market Analysis. However, this is almost never an actual “appraisal”. An appraisal is a home value estimate that is compiled by a licensed real estate appraiser. The appraiser is often hired by a lender, bank or other mortgage company to determine an official value of the home for loan purposes. The distinction between a market analysis and an appraisal can sometimes be very small but in other ways very large. For example, the way a real estate agent prepares a comparative market analysis is by examining the sales prices of similar properties in the area (known as “area comps”). A real estate appraiser may use this same technique to arrive at the value of the home, however appraisers often have several different methods they can use.

Perhaps the biggest distinction between the value arrived at in a comparative market analysis and that of an appraisal is that only an appraisal is accepted by lenders as an “official” estimate. This creates an interesting situation because the appraisal can sometimes differ from the value arrived at in a comparative market analysis, especially if the appraiser is using a different method than pulling the “comps”. This is perhaps one of the biggest issues that can occur between buyers and sellers after an offer on a home has been negotiated and accepted. Consider the following situation:

A real estate agent estimates the value of a home using area comps at $325,000 and a buyer comes allong and offers full price for the home. Later, the lender hires an appraiser to do an official appraisal on the home and they use a square footage method for determining the value and arrive at a value of $300,000. Now there’s an issue because the lender is unwilling to lend more to the buyer to purchase a home than the home is actually woth. So the end result is, in order for the sale to progress, the seller must agree to reduce the sales price by $25,000.

In many ways, a home is worth what someone is willing to pay for it, however, that value must still pass muster by the appraiser. This is perhaps the biggest reason why pricing a home correctly from the beginning is so important. Many sellers have the idea that by pricing the home high initially, they can always “get lucky” and find a buyer willing to pay more for the home. However, because the home has to eventually pass the appraisal, even if the home were to sell at an inflated price, it wouldn’t pass the appraisal.