Why Do Desktop Appraisals Come In Low?

A desktop appraisal is a method of property valuation where a licensed appraiser determines a home’s value remotely. Its use has become increasingly common, particularly for refinancing or certain purchase transactions, offering a quicker and often more cost-effective alternative to traditional, on-site appraisals. This approach relies on available data and technology to assess a property’s market value.

Understanding Desktop Appraisals

Desktop appraisals are performed by a certified appraiser who remains at their desk, collecting and analyzing property data from various sources. Appraisers typically rely on public records, such as tax records, and information from the Multiple Listing Service (MLS), including listing sheets, photos, and floor plans. They also utilize aerial imagery, satellite maps, and data from aggregators to gather details about the property and its surrounding area. The appraiser then uses this compiled information to determine the property’s value, often employing the sales comparison approach by analyzing recent sales of similar properties.

A key distinction between a desktop appraisal and a traditional appraisal lies in the absence of a physical inspection by the appraiser. In a traditional appraisal, the appraiser physically visits the property to assess its condition, measure square footage, and note any improvements or unique features. Desktop appraisals depend entirely on the credibility and completeness of provided third-party data and existing documentation. This remote nature makes desktop appraisals faster, potentially completing in a few days compared to the one to three weeks a traditional appraisal might take.

Factors Influencing Desktop Appraisal Values

The reliance on external data in desktop appraisals can influence the resulting property value. Appraisers depend on the quality and completeness of information from public records and MLS data, which may not always capture a property’s unique attributes or recent, unrecorded updates. Without a physical inspection, an appraiser cannot personally observe the interior condition, recent upgrades, or deferred maintenance. This can lead to a valuation that does not fully account for improvements not reflected in public databases or visible from external views.

Public records might be outdated or contain inaccuracies, such such as incorrect square footage or omitted features, which could impact the valuation without on-site verification. The appraiser’s ability to account for hyper-local market nuances or specific property features, like a newly renovated kitchen or unique landscaping, is limited when relying solely on remote data. Appraisers strive for accuracy, but the absence of direct observation means judgments are based on available documentation, which may not always provide a complete picture of the property’s true market value.

Implications of a Low Desktop Appraisal

When a desktop appraisal comes in lower than the agreed-upon purchase price or a homeowner’s expectation, it can significantly impact a real estate transaction. Mortgage lenders typically will not finance a loan for more than the appraised value of the property. This means if the appraisal is lower than the sales price, the buyer may need to cover the difference out-of-pocket, as the loan amount will be reduced to match the appraised value. This situation can lead to a higher loan-to-value (LTV) ratio for the buyer, which compares the loan amount to the property’s appraised value.

A higher LTV ratio can affect loan terms, potentially requiring a larger down payment or impacting the interest rate offered by the lender. If the buyer cannot or will not provide the additional funds, the transaction may be jeopardized. This scenario often leads to renegotiations between the buyer and seller, where the seller might be asked to lower the price, or other concessions might be sought to bridge the appraisal gap. In some cases, if an agreement cannot be reached and there is an appraisal contingency in the purchase contract, the deal may fall through, allowing the buyer to withdraw without losing their earnest money deposit.

Steps After a Desktop Appraisal is Received

Upon receiving a desktop appraisal, especially if the valuation is lower than anticipated, thoroughly review the report. Examine the report for any factual errors or omissions, such as incorrect room counts, inaccurate square footage, or overlooked amenities like a fireplace or a pool. Discrepancies in the property’s age or condition ratings should also be noted. Identifying such inaccuracies can provide a basis for further action.

A formal request for a “reconsideration of value” (ROV) can be initiated through your lender if errors or omissions are found. For an ROV, provide new, relevant data the appraiser may not have considered. This includes recent comparable sales that are more suitable or timely than those used in the original report, particularly those closed within the last 12 months and from verifiable sources like MLS or county records. Information about significant property features not adequately reflected in public data, or details about multiple offers received on the property, can also be supplied. If the ROV process does not yield a satisfactory outcome, and the transaction is contingent on the appraisal, another option could involve ordering a new appraisal, potentially a traditional one with an on-site inspection, if the situation warrants.