10 Real Estate Appraisal Myths, Debunked

Last updated on April 22nd, 2024 at 11:05 pm

When it comes to real estate appraisers, there are plenty of appraisal myths and misconceptions that tend to cloud most people’s understanding. 

Accurate and reliable appraisals are an important part of the home buying process, as their goal is to provide an objective and impartial assessment of a property’s value. 

In this listicle, we’ll debunk 10 common appraisal myths and shed some light on the reality behind them.

Disclaimer: Our articles are written by a Licensed or Certified Residential Appraiser. This information is meant for educational or informational purposes only, and does not support or indicate an opinion of value for your home or property, nor does it provide any type of value indication for a lender, attorney, realtor, or any other individual or entity.

Many people believe that online valuation tools like Zillow can provide an accurate estimate of a property’s value.

Why it’s incorrect: While it’s true that sites like Zillow, Redfin, and the like can sometimes be in the right ballpark, (as they say, even a broken clock is right once a day) – online valuation tools use algorithms and automated data, which may not consider all the relevant factors that a professional appraiser would.

As a real estate appraiser, I’ve conducted a few case studies on this topic. My findings are that in subdivisions with a significant amount of sale data, and homes that are very similar in features such as living area, age, style, condition, etc., these sites can often give you a general idea of what your home might sell for. 

On the other hand, if your home is unique in ANY way whatsoever, they tend to be way off base.

In rural areas, waterfront areas, or essentially any home that isn’t located on a postage stamp lot with a hundred other similar home sales nearby, the data that’s out there just doesn’t cut it. 

The reality: Real estate appraisals include a comprehensive analysis of the property’s condition, location, comparable sales, market trends, renovations made, unique lot features, and a host of other possible components that Zillow won’t pick up on.

There is no substitute for a pair of trained eyes that can see your property for what it truly is. A licensed appraiser will almost always provide a more accurate and reliable valuation of your home.

Some believe that appraisers simply match their appraisal value to the contract price. While it’s true that in a home purchase situation, the appraiser IS provided a copy of the contract, this is not, and should never be, the basis for their value conclusion.

We are required to provide a report that includes data that supports a credible conclusion – If that data exists, it will be shown and thoroughly explained.

Without supporting data that indicates that the contract price is accurate, no lender will accept an appraisal that simply “matches the contract price” without adequate data behind it. 

Why it’s incorrect: Appraisers are independent and impartial professionals. The offer price is just one factor of many that are taken into account and analyzed. 

There’s a reason for this. In its most basic form, the “value” of any home is determined by…wait for it… What a buyer is willing to pay for it. 

And which data is a reflection of what buyers are willing to pay? You guessed it… The contract price.

This number is a data point that indicates to an appraiser that a home has been marketed, likely viewed by several interested parties and that the resulting sale price is what buyers determined the home was worth.

The reality: Appraisers use their expertise, knowledge, and access to extensive amounts of data to provide an objective appraisal value, ensuring a fair transaction. 

Any appraiser who simply “hits a target number” is risking their livelihood if they don’t have the data to back it up. 

Many confuse appraisals with home inspections, assuming they serve a similar purpose.

Why it’s incorrect: Appraisals focus on determining the value of a property, while home inspectors identify the condition of the property and any needed repairs.

While it’s true that an appraiser will note apparent safety concerns and provide a general description of a property’s condition, a home inspection is a much more in-depth view of mechanical systems, code issues, safety concerns, and functionality of all components. 

The reality: Appraisals and home inspections serve completely different purposes and involve separate professionals with distinct areas of expertise.

Appraisers are not qualified to be home inspectors, and vice versa.

An appraiser’s expertise lies in analyzing market data, being familiar with market trends, and identifying how these factors impact a home’s value. 

RELATED: COMMON APPRAISER QUESTIONS

Some believe that the buyer owns the appraisal and that they are owed access to the report and may use this data however they wish.

Why it’s incorrect: The appraisal is typically ordered by the lender – they want to make sure the property’s value supports the amount being loaned. The lender is typically the appraiser’s “client”.

As a result, the appraiser’s obligations for providing the report and receiving payment lie with the lender, not the home buyer. 

The reality: While the buyer may pay for the appraisal, (typically included as part of their loan fees) the lender owns the report and its contents and must be the one’s to release it to others.

Buyers are obligated to receive a copy from the lender, not the appraiser.

MORE ON APPRAISAL CONFIDENTIALITY

People often feel that appraisers have a significant influence over the home buying process. A low appraisal can sometimes make or break a deal – this can make it seem as if the appraiser has ultimate power over the entire purchase transaction.

Why it’s incorrect: An Appraisers job is to provide an unbiased assessment of a property’s value and other relevant data, but they do not have the power to determine the final contract price, to negotiate on behalf of any party, or to determine if a lender will loan you a certain amount of money. 

The reality: An appraiser’s role is simply to provide information in their area of expertise, in an attempt to ensure a fair transaction and promote public trust when it comes to lending. The purpose is to protect the interests of all parties. 

Once all parties are informed about how the market is likely to react to a certain property.

It is ultimately up to the lender to decide if they will loan money, and up to the buyer and seller if they wish to accept the price offered. 

Appraisers do not “set the market.” Appraisers report what has already happened within the market.

Some assume that appraisers and real estate agents perform similar roles in the home buying process.

Why it’s incorrect: Real estate agents represent buyers or sellers, while appraisers provide an objective valuation of a property’s worth. The appraiser is not working on anyone’s behalf, nor do they have any interest in whether or not the transaction succeeds. 

The reality: Appraisers are neutral third parties who provide unbiased opinions of value based only on market data and analysis. The appraisal profession is heavily regulated and has a high liability risk – there must be supportive data behind whatever value is determined to be accurate. 

Would you want a real estate agent to confirm a property’s worth to the lender, knowing that their commission is greater if the sale price is higher?

I wouldn’t. 

It’s often thought that appraisers overlook current market trends when valuing a property, and simply look back on past data. 

Why it’s incorrect: Appraisers carefully analyze market trends that exist over the last year and beyond, as well as the most recent data including pending sales, current offers, and active listings.

The reality: Appraisers consider a variety of factors, including current market trends, to ensure their appraisals accurately reflect the current real estate market.

Lenders require a minimum of three recent sales within the last year that support the value determination.

However, it may be true that a pending sale, (home under contract), is more heavily relied upon in changing markets. This should be explained in the report and is acceptable to lenders when markets are increasing or declining. 

Many believe that appraisers primarily use price per square foot as a key factor for their valuations.

Why it’s incorrect: While price per square foot can be a helpful metric, appraisers consider numerous factors, such as location, condition, quality, amenities, and recent market trends, to determine a property’s value. 

The reality: Appraisers use a comprehensive approach that takes into account multiple variables to provide an accurate valuation.

You get the idea – there are just too many factors to consider besides looking at a final sale price and comparing it to a home’s living area. This is essentially the only data that price per square foot provides. 

Realtors often approach appraisers with a price per foot calculation and argue that this should be the basis for a higher appraisal value.

In most cases, they fail to consider that there are significant differences in quality, amenities, upgrades, lot features, etc. that account for differences in value.

Some assume that appraisals involve a simple comparison of recent home sales which can be completed quickly and without considering other factors.

Why it’s incorrect: Appraisers evaluate multiple factors, including location, condition, size, amenities, and recent comparable sales, to determine a property’s value.

The reality: Appraisals require a thorough analysis that goes far beyond a simple comparison of home sales to provide an accurate assessment.

It is commonly believed that the appraisal value and tax assessed value are, or should be, the same.

Why it’s incorrect: Tax assessments and appraisals serve different purposes and are based on different methods and criteria.

The reality: Tax assessed value is used for property tax calculations. Assessors have their own formulas that are used to determine property tax amounts. The “market value” they rely on is sometimes only a percentage of the true market value. 

An appraisal determines the fair market value for mortgage purposes, refinances, home equity loans, and a host of other purposes. 

NEXT READ: WILL AN APPRAISAL INCREASE MY PROPERTY TAXES?

I hope that debunking these real estate appraisal myths helps clarify the role of appraisers and answers some common questions regarding appraisals.

Understanding the truth behind these misconceptions empowers buyers, sellers, and investors to make more informed decisions and more fully understand the process. 

Remember, when it comes to real estate appraisals, relying on the expertise of licensed professionals is crucial for a successful transaction.

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