Can Appraisals Be Wrong? What to Do About It

A property appraisal serves as an independent, professional opinion of a home’s value, playing a fundamental role in real estate transactions such as buying, selling, or refinancing. While these valuations are designed to be objective and reliable, it is a common concern whether an appraisal can be inaccurate or “wrong.” Understanding the appraisal process and influencing factors helps clarify why values might differ from expectations and what steps can be taken.

The Purpose and Process of a Property Appraisal

The primary purpose of a property appraisal is to provide an unbiased, professional opinion of a property’s market value. Lenders often require appraisals to ensure the loan amount does not exceed the property’s worth, protecting their investment by confirming the collateral’s value. The appraisal process begins with the appraiser receiving an order, typically from a lender, which outlines the scope of work and the property to be valued.

Following the order, the appraiser schedules an on-site visit to the property. During this visit, they conduct a thorough inspection of both the interior and exterior, noting the property’s condition, features, and quality. Concurrently, the appraiser begins market research, identifying comparable properties that have recently sold in the immediate area. This data collection forms the foundation for their analytical work.

The information gathered during the inspection and market research is then compiled and analyzed. The appraiser measures the property’s dimensions, assesses the number of rooms, and identifies any improvements or deficiencies. They also consider site characteristics, such as lot size and zoning regulations, which can influence value.

Key Factors Determining Appraisal Value

Appraisers consider internal and external factors to determine a property’s value, adhering to professional standards like the Uniform Standards of Professional Appraisal Practice (USPAP). Internal property characteristics include the property’s size, age, and physical condition. The number of bedrooms, bathrooms, and specific features like a garage, basement, or significant renovations are also evaluated. These elements contribute directly to the property’s utility and appeal.

Beyond physical attributes, the appraiser analyzes external market factors. This involves identifying recent comparable sales, often called “comps,” which are similar properties that have sold within the last six months. Adjustments are made for differences between the subject property and these comparables to arrive at an adjusted value.

Current market conditions also influence the valuation process. Supply and demand dynamics within the local housing market, economic trends, and interest rate environments can affect property values. For example, low inventory combined with high buyer demand can drive prices upward. Neighborhood characteristics, such as school districts, accessibility to amenities, and community appeal, further contribute to the property’s market desirability and appraised value.

Causes of Appraisal Value Differences

Even with rigorous standards, appraisal values can sometimes differ from expectations. One common reason involves data errors, which can occur if property measurements are inaccurate, public records contain incorrect information, or the appraiser uses outdated comparable sales data. A miscalculation of square footage, for instance, can lead to a significant difference in the final valuation.

Rapid shifts in local market conditions can also contribute to value differences, especially if there is a time lag between the contract date and the appraisal date. In a fast-moving market, where prices are rising or falling quickly, an appraiser’s interpretation of recent trends might differ from the perceived market reality. For example, if new comparable sales close after the appraiser completes their initial research, those sales might not be included, impacting the valuation.

Appraiser judgment and subjectivity also influence the final valuation, particularly for unique properties or in challenging markets where comparable sales are scarce. Different appraisers might weigh various factors differently, such as the impact of a recent renovation versus external market conditions. While appraisers adhere to established guidelines, applying these guidelines often involves professional discretion, which can lead to slight variations in opinions of value. This is not necessarily an error but a reflection of differing professional perspectives.

A lack of suitable comparable properties can also make precise valuation challenging, especially in rural areas or for homes with very distinct features. Appraisers must rely on older sales or properties that require more significant adjustments. Similarly, differing assessments of a property’s condition or the cost of needed repairs can lead to varied valuations. What one appraiser considers a minor cosmetic issue, another might view as a significant defect requiring substantial investment, influencing their final value conclusion.

While appraiser independence is paramount, external influences, such as tight deadlines, can indirectly affect the depth of research. Although appraisers are ethically bound to provide an unbiased opinion, the perception of external pressure can lead stakeholders to question the thoroughness of the appraisal. This acknowledges that practical constraints can sometimes limit information gathering, potentially missing key details that could influence the valuation.

Steps to Take When Questioning an Appraisal

When you receive an appraisal report that seems inconsistent with your expectations, first review the entire document for factual errors or omissions. Check property details such as square footage, number of rooms, and lot size against your own records or public information. Look for any overlooked improvements, misidentified features, or incorrect addresses for comparable sales.

After review, communicate your concerns, typically through the lender who ordered the appraisal. Most lenders have a formal process for addressing appraisal disputes. You can request a “reconsideration of value,” a structured process to re-evaluate the appraisal. This request should be accompanied by specific, factual information you believe was missed or misinterpreted, such as recent comparable sales not included in the report, or permits for unlisted property improvements.

When providing additional information, focus on objective data rather than subjective opinions. For example, submitting recent sales data for highly similar properties that closed after the appraiser’s effective date can be impactful. Providing documentation for significant upgrades, such as a new roof or HVAC system, that may not have been fully accounted for can also be beneficial.

The reconsideration of value process typically involves the lender submitting your additional information and concerns back to the original appraiser. The appraiser will review the new data and provide a response, which may or may not lead to a change in the appraised value. This process usually takes a few business days to a week, depending on the appraiser’s workload and the complexity of the review.

As a last resort, if a reconsideration does not resolve the discrepancy, you might consider obtaining a second appraisal. This option involves ordering a new appraisal from a different appraiser, which will incur additional costs, typically ranging from $400 to $800 or more. While a second appraisal can provide another opinion of value, there is no guarantee it will result in a higher value, and it may even come in lower or similar.