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Do Experts Value Your Home More Than You?

Jonathan Miller writes about the housing economy and other aspects of real estate. He began a real estate blog, the Matrix, in 2005, and has written a column for Curbed.com. He is co-founder of Miller Samuel, a residential real estate appraisal company, and the commercial valuation firm Miller Cicero.
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Homeowners are almost naturally inclined to have a higher opinion of their properties than anyone else, including potential buyers, lenders, brokers or appraisers. But that wasn't always the case during the bubble years, and inflated real-estate appraisals contributed to the excesses.  

In the half-dozen years after the financial crisis, everything got turned upside down: Appraisers became particularly conservative.  Appraisal values were consistently lower than homeowner value opinions from 2007 to 2013 and were even seen as a drag on the U.S. housing-market recovery. 

That's changed during the past year, according to Quicken Loans, the second-largest U.S. retail mortgage lender. The average appraisal now is higher than homeowner estimates of value based on Quicken's new Home Price Perception Index, which uses data from its purchase- and mortgage-refinance business in the 26 biggest housing markets. 

Here are the top three markets in which appraiser valuations exceeded homeowners' estimates (by the way, these markets also had the largest price increases during the past decade):

In comparison, the three housing markets with the lowest appraisal values showed no correlation to long-term price gains. In fact, these markets seem to be the exception -- in more than three-quarters of U.S. housing markets, appraised values exceeded homeowner estimates: 

Maybe the outbreak of appraiser optimism is something to welcome. "It makes for a much smoother mortgage process if appraisers are valuing homes above homeowners’ estimates like we’re seeing, as compared to the opposite,”  Quicken Loans Chief Economist Bob Walters said. 

I'm not so sure. As noted before, the quality of appraisals is declining. If that's the case, overly optimistic appraisal values could be a warning to the mortgage-lending industry that there may be less to the housing market's recovery than meets the eye. 

This column does not necessarily reflect the opinion of Bloomberg View's editorial board or Bloomberg LP, its owners and investors.

To contact the author on this story:
Jonathan J Miller at jmiller@millersamuel.com

To contact the editor on this story:
James Greiff at jgreiff@bloomberg.net