Why so bubbly? I have decided to list the top five reasons of why California real estate has been and continues to be inflated.
1. No Check and Balance. No longer is there a true advocate for a buyer in real estate. When was the last time you heard a buyers real estate agent say” this property is overpriced, make your offer accordingly, or not”!
2. Distortion and Spin. Agents attempting to discredit or ridicule an appraiser if the appraised value does not support the “market” price. Banks choosing appraisers based on the cheapest price, shortest turnaround times, pocketing half the appraisal fee, creating their own appraisal guidelines irrelevant to the efficiency of the valuation process. In reality appraisers are an unbiased, third party, creating complete transparency with documented reports potentially saving a buyer thousands in financial loss or a refinancing home owner from going upside down!
3. Lack of Knowledge. A lack of understanding between market price vs. market value. The onslaught of real estate flipping T.V. shows that are edited down to a simple and easy process with a happy ending creating an unprecedented number of inexperienced real estate investors that are trying to make an ongoing business out of flipping properties. Along with this is a growing oversupply of investors and declining number of deals. This is keeping real estate prices artificially inflated!
4. New Purchasing Power. The first time participation of hedge funds also looking at residential real estate as an investment tool, making above list price offers, because of their buy and hold strategy.
5. No Transparency. Market value is based on “market trend”, not on a handful of people who have been informed by agents that stand to make a commission based on what they’ve decided the sales price should be. An unbiased third party, the Appraiser, should do the appraisal first, fully informing all parties and making the transaction transparent. The current system is backwards because of the strong lobbying power and endless money that real estate sales agent organizations have.
In the past ten years, what determines value and who is most qualified and experienced to fully inform the homeowner of market trends, has been distorted exponentially because of money and politics. Improper sources are leading to fake real estate prices!
Chief Appraiser / Realtor / Analyst / Investor