Are House Appraisals Accurate & What to Do If They’re Not

A house appraisal serves as an objective professional evaluation of a home, estimating its market value. This assessment is a standard component of real estate transactions, particularly when securing a mortgage or refinancing an existing loan. Its primary purpose is to provide an unbiased opinion of value, which helps protect both the lender and the buyer. Lenders rely on appraisals to ensure the property’s value adequately supports the loan amount, mitigating financial risk. For buyers, the appraisal confirms they are not overpaying for a property, providing a layer of financial protection in a significant investment.

Understanding House Appraisals

A house appraisal is conducted by a state-licensed appraiser, providing an impartial opinion of a property’s value. The process begins when a lender orders the appraisal, typically after a purchase agreement is signed or a refinance application. The appraiser schedules a visit to inspect the property’s interior and exterior. During this visit, the appraiser assesses the home’s characteristics, condition, and any improvements.

Following the inspection, the appraiser gathers data on recent sales of comparable properties. This data is often collected from sources such as the Multiple Listing Service (MLS), tax records, and local real estate agents. The appraiser compiles a report presenting their opinion of the property’s value to the lender. As a borrower, you are entitled to receive a copy of this report before the loan closes.

Key Factors in Determining Value

Appraisers consider many elements to determine a property’s value, with characteristics forming a primary part of the assessment. This includes the home’s size (square footage), number of bedrooms and bathrooms, as these impact livable space and functionality. The age and condition of the property are also evaluated; well-maintained homes, even older ones with modern updates, generally appraise higher. Architectural style and features like a garage or swimming pool contribute to the property’s appeal and value.

Location is a primary factor in real estate appraisal. Appraisers assess neighborhood desirability, including school districts and proximity to amenities like shopping centers, hospitals, and public transportation. Factors such as crime rates, future development plans, and aesthetic appeal of the surrounding area also play a role. A property’s placement near undesirable features, such as a landfill or a busy highway, can negatively affect its value.

Comparable sales, or “comps,” are key to an appraiser’s valuation, involving analysis of recently sold similar properties in the same market. Appraisers use at least three closed sales from the past six months to a year. Adjustments are then made to the sale prices of these comparable properties to account for differences in features, size, condition, and sale date when compared to the subject property.

Market conditions also influence appraisal values. Economic trends, such as interest rates and employment rates, impact supply and demand within the local housing market. A strong economy with high demand and low inventory tends to drive up property values, while economic downturns or high interest rates can lead to a decrease. Appraisers must stay informed of market shifts to provide accurate valuations, as rapid price changes can make it challenging to reflect real-time values.

Improvements and upgrades made to a property are assessed for their contribution to value. Renovations, such as a modernized kitchen or a finished basement, can boost a home’s appraised value, provided they are consistent with the neighborhood’s character. Appraisers also consider external factors, including zoning regulations, easements, and environmental factors like proximity to floodplains or pollution sources. These elements, along with the home’s curb appeal, are evaluated to provide an assessment of the property’s market value.

Factors Leading to Valuation Differences

While appraisals aim for objectivity, inherent variables can lead to differences in valuation, even for the same property. Appraisers exercise professional judgment when making adjustments for differences between the subject property and comparable sales. For instance, the exact dollar value assigned to an additional bathroom or a larger lot can vary slightly based on an appraiser’s interpretation of local market demand and their experience. This subjective element in applying adjustments contributes to minor variations in final valuations.

Market volatility means rapidly changing conditions can make it challenging for appraisals to capture real-time values. In a swiftly appreciating market, an appraisal based on recent past sales might not fully reflect current price increases, potentially leading to a lower valuation than expected. Conversely, in a declining market, appraisals may reflect values based on older, higher sales data, which could be adjusted downward to align with current trends. This lag in data can create a perceived discrepancy between the appraised value and immediate market expectations.

In certain situations, finding truly comparable sales can be difficult, particularly for unique or rural properties. When limited recent sales data is available, appraisers may need to expand their search or use older sales, requiring more significant adjustments and relying more heavily on their expertise. This scarcity of direct comparables can introduce broader assumptions into the valuation process, potentially leading to a wider range of opinions.

An appraiser’s experience and knowledge of a property type or micro-market can also subtly influence their valuation. While all appraisers are licensed and adhere to professional standards, their individual background and familiarity with nuances of a specific area can lead to differing interpretations of value. This human element, though guided by professional standards, can result in variations between appraisals.

Undisclosed or unapparent property issues can also contribute to valuation differences. Hidden damage, unpermitted additions, or structural concerns that are not immediately obvious during a standard appraisal visit might not be fully accounted for in the initial report. If these issues are later discovered, they could explain a lower-than-expected valuation or lead to a re-evaluation. Similarly, unique property features that are difficult to quantify with standard comparable sales data can present a challenge for appraisers.

Addressing Discrepancies in Appraisals

When an appraisal result differs from expectations, reviewing the report thoroughly is the initial step. Examine the report for any factual errors, such as incorrect square footage, bedroom or bathroom counts, or misidentified property features. Check the comparable sales used by the appraiser, looking for any that might be inappropriate or recent sales that were overlooked. Identifying specific errors or omissions in the report provides a strong basis for addressing concerns.

After reviewing the report, gather supporting evidence to substantiate your concerns. This evidence could include recent comparable sales in the area not included in the appraisal report, particularly those with similar characteristics. Additionally, compile documentation for home improvements or upgrades, such as renovation receipts or permits, which may have been overlooked or undervalued. Photographs highlighting unique property features or recent updates can also be beneficial.

Communication regarding appraisal discrepancies typically occurs through the lender or the Appraisal Management Company (AMC) that ordered it. Direct communication with the appraiser is generally not permitted to maintain appraiser independence. Request a reconsideration of value (ROV) through the lender or AMC, providing all gathered supporting documentation. This request should clearly point out any factual errors or overlooked data from the original report.

The lender or AMC will forward your request and supporting information to the appraiser for review. The appraiser will consider the new evidence and may revise their valuation, provide an explanation for their original conclusion, or request additional information. Understanding the outcome means recognizing that the appraiser is not obligated to change their value, but they must provide a reasoned response to the new data. If the appraiser does not alter the valuation and you remain unsatisfied, some lenders may allow for a second appraisal, though this is not guaranteed and may involve additional costs.