Tarrant County Real Estate: Navigating the Shifting Sands of a Slowing Market
The real estate landscape in Tarrant County is unmistakably changing. After years of robust growth and competitive seller’s markets, concrete data now points to a noticeable deceleration. The latest Fort Worth Housing Report reveals a significant shift: the number of closed home sales in July 2019 decreased by nearly 4 percent compared to July 2018. This trend, while not a cause for panic, signals a crucial turning point for both buyers and sellers in the North Texas region.
Beyond just sales volume, other key indicators reinforce this market adjustment. We’re observing a steady increase in the inventory of homes available across Tarrant County, providing buyers with more options than they’ve seen in recent years. Concurrently, the total days on market – the period from when a home is listed to when it officially closes – has extended by an average of six days from 2018 to 2019. This elongation suggests that homes are taking longer to sell, a direct consequence of increased supply and potentially softening demand. Furthermore, home prices, which once surged with relentless momentum, have shown only marginal increases over the past 12 months. This plateauing of values is directly contributing to a rising concern in the industry: a growing disconnect in property appraisals.
Understanding Home Value: The Appraisal Enigma
In a truly free-market society, a home’s value might be solely determined by what a willing buyer is prepared to pay and a willing seller is ready to accept. However, the reality of real estate transactions in the modern era is far more complex. The true value of a home, especially for the vast majority of transactions requiring financing, is ultimately what a bank is willing to lend. And this critical lending decision hinges almost entirely on the outcome of the property appraisal – an often-misunderstood and frequently contentious aspect of the home-buying and selling process.
The challenges surrounding appraisals are not new. During the Great Recession, particularly between 2010 and 2012, the real estate community faced widespread issues. New government restrictions and regulations were implemented, aimed at preventing past abuses where lenders could “hand-select” appraisers, potentially leading to inflated valuations. While well-intentioned, these changes created a new set of problems. Many appraisers, under intense scrutiny from various oversight entities and fearing accusations of “loose valuations,” adopted an overly cautious approach. This fear often led to an extreme tightening of appraisal criteria and findings, making it incredibly difficult for properties to appraise at their contract prices.
Imagine combining this apprehension with a market inundated with distressed properties like short sales and bankruptcy sales. Appraisals became wildly inconsistent, creating immense frustration for sellers and listing agents who struggled to price homes accurately. The memory of this era highlights the delicate balance appraisers must strike between protecting lenders and reflecting genuine market conditions.
The Science of Comps: What Appraisers Look For
At its core, an appraiser’s job is to determine a property’s fair market value by analyzing comparable sales, commonly known as “comps.” Most appraisers explain their process as a meticulous search for the most similar homes in terms of size, age, bedroom count, and location to the subject property being appraised. The general rule of thumb dictates looking for homes that fall within approximately 20 percent above or below the subject property’s size (e.g., for a 2,000 sq. ft. home, appraisers would seek comps between 1,600 and 2,400 sq. ft.). Other key criteria include matching bedroom and room counts, the number of stories, and ideally, using sales that closed within the past 90 days.
It’s worth noting the inherent paradox in this approach: while every other stakeholder in a real estate transaction – buyers, sellers, and agents – looks forward to future market potential, appraisers are legally bound to look backward, basing their valuations on past sales data. This reliance on historical information can sometimes create a lag, making it challenging for appraisals to keep pace with rapidly shifting market dynamics.
Crucially, nowhere in any reputable “Appraisers Guidebook to Success” will you find valuation linked to the infamous price per foot metric. Despite its persistent misuse by some agents and the public, “price per foot” is a highly unreliable indicator of a home’s true value. It fails to account for critical factors such as lot size, upgrades, condition, amenities, and unique architectural features, leading to vastly inaccurate conclusions. A simple square footage calculation cannot encapsulate the nuances that differentiate one property’s value from another.
Why the Resurgence of Bad Appraisals Now?
After the turbulent years of the Great Recession, as distressed sales gradually cleared the market, it seemed as though appraisals and sales prices found a period of relative stability. Occasional discrepancies between contract price and appraised value would arise, but these were typically minor and could be resolved with minor adjustments or negotiations. However, the recent shift in the Tarrant County market has brought back a disturbing pattern.
Surveys of real estate agents across various areas and price points in Tarrant County reveal a growing and concerning disconnect between the agreed-upon contract price and the eventual appraised value. This phenomenon, once a rarity, is now rearing its ugly head with increasing frequency.
The Fort Worth Housing Report’s data unequivocally confirms that the Tarrant County real estate market is decelerating. This isn’t a call for panic, but rather an urgent need to confront reality. When homes linger on the market for extended periods, sellers naturally become anxious. Anxious sellers are often more willing to entertain and accept lower offers to expedite the sale. When such lower offers are accepted, these transactions subsequently become comparable sales (comps) for appraisers evaluating other properties in the same neighborhood. The inevitable outcome is a lower appraisal for subsequent homes.
This cycle, repeated a handful of times within a specific area, can initiate a “price reset.” While this development is generally favorable for buyers who gain more negotiating leverage and better value, it presents significant challenges for appraisals, sellers, and listing agents who must adapt to the new market realities.
Strategies for Navigating a Changing Market
Contrary to what some sellers or even certain listing agents might believe, a recalibration of prices is not necessarily a negative development. Home values are, in most cases, still appreciating, albeit at a slower, more sustainable pace. Prices remain historically high across various locations, price points, and home sizes. This is not a market collapse; it’s a transition from an overheated, frenetic pace to a more balanced, perhaps even healthier, environment.
It’s time for a reality check. Listing agents bear a crucial responsibility to employ superior data analysis and more rigorous criteria when pricing homes. A realistic pricing strategy, one that is robust enough to withstand the scrutiny of an appraisal, is paramount. Sellers, in turn, must shed the lingering mindset of the 2015-2018 boom years. The market is increasingly shifting towards buyers, making it unrealistic to expect to achieve the same aggressive prices seen in previous market cycles. Adapting to current conditions is key to a successful sale.
Avoid Common Pitfalls: What Not to Do
To navigate this evolving market successfully, sellers and agents must avoid several common pitfalls:
- Stop pointing to outdated sales: Refrain from referencing a neighbor’s home that sold 18 months ago as justification for your asking price, particularly with the sentiment, “My home is better, so it should sell for more!” Historical data beyond a few months can be largely irrelevant in a shifting market.
- Stop misusing price per foot: Cease attempting to apply the price per square foot of a small, single-story, three-bedroom home to justify the price of a sprawling, two-story, five-bedroom property. These are fundamentally different assets, and a simple square footage comparison is a misleading “apples-to-oranges” fallacy.
- Stop blaming the appraiser indiscriminately: While there are instances where an appraiser’s work may be flawed, it’s essential to differentiate between legitimate errors and market realities. Not every low appraisal is the appraiser’s fault, especially when comparable sales data supports a lower valuation.
Indeed, there are appraisers who may fall short in their professional duties, inadvertently doing a disservice to sellers and agents. If a legitimate, data-backed argument can be constructed against a low appraisal, it is imperative to involve your lender and agent to state your case effectively. Provide compelling evidence of missed comparables or errors in property characteristics.
Unfortunately, many appraisers remain highly cautious, often reluctant to reconsider their valuations due to lingering fears of reprisal from regulatory bodies. However, a significant number of appraisers are impartial professionals who will genuinely consider a price adjustment if presented with accurate and compelling additional information that was not initially factored into their assessment.
Embrace the New Normal: The Future of Appraisals
From my perspective, the real estate community should brace itself for a period of continued appraisal discomfort over the next year or two. As home prices stabilize, plateau, or even experience slight corrections, lower appraisals are a predictable consequence. This is simply the market adjusting to a new equilibrium. Preparing for this reality is crucial.
This evolving landscape underscores the critical importance of having a highly skilled and experienced real estate sales professional working on your behalf. A seasoned agent can help you navigate complex appraisal challenges, accurately price your home, and strategically market it to achieve the best possible outcome in a shifting market.
That concludes this week’s insight from Tarrant County Tuesday. Thank you for reading, following, and sharing! As always, if you have questions, comments, or great ideas for future posts, please don’t hesitate to reach out.
Seth Fowler is a licensed Real Estate Sales Professional for Williams Trew Real Estate in Fort Worth, TX. Statements and opinions are his and his alone. Seth has been actively involved in the home sales and real estate industry in the Fort Worth area since 2004. He and his family have been residents of the area for over 17 years. Seth is also known for his fondness for bow ties! You can reach Seth directly at: 817.980.6636 or [email protected]. If you’re seeking a knowledgeable Real Estate Sherpa to guide you through your buying or selling journey, give Seth a call!