Have you ever been to a garage sale where the owner of the "merchandise" was just asking for way too much?
Sometimes this happens because emotionally, we are not ready to let go of something we used to get so much enjoyment from - whatever that item may have been.
It happens all the time; we all have a difference of opinion on how much something is worth...
The same applies to the value of homes when it comes to selling - buying, or refinancing one.

I had a conversation the other day with an appraiser that recalled an experience with a homeowner who was berating her for turning in a "lower than expected value" for his home as he was going through the loan process.
The homeowner obviously did not appreciate her opinion of the home's value, but what he failed to understand was that an appraisal report is based on facts and figures surrounding a property.  It is the appraiser's job to uncover any circumstances that may affect "normal" pricing.

Granted, some appraisers dig deeper than others when turning in their reports - but they cannot really control the local market in any area. They are there to give an objective opinion of a home's value to the bank in any given market and this is even more important in the current market.

Therefore, lets take a look at how the value of a home may affect a "normal" seller in a declining market.
Let me define "normal" as being a seller who is not in a distressed situation and does not have to sell.
If a home happens to be in an area where there are many short sales and bank owned homes, most likely they will have a challenge at getting a "normal market" appraisal. That being true - because if those type of figures are all the appraiser can find, then that is what the appraisal will show.
 
So... even if a home may be worth more than its surrounding inventory - if that surrounding inventory is saturated with short sales and foreclosures, a buyer's loan appraisal most likely will also not come in as high as the seller believes his home to be worth.

In a situation like this, the deal has a good chance of falling out of escrow or not making it to escrow at all - depending on how the negotiation process unfolds.

The same holds true for any homeowner trying to refinance. If a homeowner wants to or has done some upgrades to his home and expects to refinance his loan to cover those costs, the appraisal on his home may come in much lower because of the current market environment. In this case, there isn't much a homeowner can do, but wait until more favorable market times.

With all that being said, if a homeowner intends to sell his home in the current market, and HAS TO sell - then he or she should be made aware of the pitfalls of what an objective appraisal can do to the pricing of their home and should price it accordingly.

As for buyers in this market, there's never been a more friendly environment to purchase a home... if you are ready to own and hold for 5 years or more, it's only a matter of time when this small window of opportunity will close. For some, it may be sooner than later.