Appraisals: Do you think they give a fair value most of the time

14 Replies

In my opinion, it depends on the appraiser and the appraisal management company you work with. My first question is always how many appraisals they have done in the town/city in which I need the appraisal and how recently. I have had some appraisers come from over an hour away and really lacked market knowledge for my market. 

As long as you go with a reputable firm there should be no surprises provided your rents aren't way under/over market rent and your expenses are in line with market. If, for example, your rents you are getting are above market, an appraiser may roll them down to market rent depending on your local landlord tenant bylaws. Also, if your expenses are too low the appraiser will typically put them in line with comparable properties on a per-unit basis. This means, for example, if you're self managing the property the appraiser will still add a management expense which will impact the NOI.

Edit: I'm referring to buildings of 5+ units

Originally posted by @Michael Corso :

When getting your appraisals done do you think they usually give a fair value, What is your experience ?

Two different appraisers will give you appraisals $50,000 apart. They give an "opinion" of what they think the value is at that time. There are way too many variables they use or don't use depending on the appraiser, experience, how busy there are, if they want repeat business, etc . What is "fair"? I dunno.  I do my own calculations using 3 similar properties sold in the last 3 months within half a mile of the subject property and I can pretty much come up with a "favorable" number if I'm buying, depending on which 3 properties I select and a "favorable" number using a different 3 properties if I'm selling. It's just a fact.

@Michael Corso Short answer: no. Long answer: NOPE. We routinely have out-of-state clients get appraisals on their properties here with us, and there's a 98% chance the appraisal is going to come back at a number no one else agrees with. Now, there's a super long story about why that happens HERE so much, but I'm not going to get into that.

As Account Closed said, it's someone's subjective opinion. I don't know how many times we provide real comps to the appraisers to help them adjust their number to fall in line with reality, but I'm pretty sure it is every other day. 

That being said, there are one or two appraisers here that really DO know the area well, and we're happy to work with them, and they give us numbers that take everything into account, so they are very fair. Depending on if you're getting your appraisal locally or out-of-state, use them at your own caution and discretion after some due diligence. 

Good luck, sir! :)

Like anything, some appraisers are better than others. Part of the problem is appraisal management companies that only care about cheap and fast, and they are a pita to work with. Guess which kind of appraisers will work cheap.

Speaking very generally I find that when I am working with clients purchasing a home who are well qualified, the appraisal generally comes in right at or just over purchase price. Remember, appraisers have a copy of the purchase & sale contract furnished to them before doing the appraisal.

On cash out refinances, the home usually always appraises for less than you think in my experience with my own deals and what I hear from others. Thus making it so the borrower has more "skin in the game".

Is this a ittle bit conspiracy theory-ish on my part? Probably. Do I believe the above to be true in almost all cases? Unfortunately, yes.

For MLS purchases every appraisal I have gotten is within $1000 of my offer price. The appraiser works for the bank. Their job is to substantiate that the property is worth the selling price. If it is worth more, there is no up side to the appraiser determining that. So in my experience the appraiser starts with the price they want, then looks for comps to support it. Not the other way around. That means it is not objective at all. If it was objective, they would not know the selling price!

In the case of my HELOC, they appraised a value $80K less than what I know it could sell for. They ignored closer houses that sold for way more. It didn't affect my HELOC value, so I didn't argue but I wasn't happy paying the guy to undervalue my home.

Appraisals are based on comparable, so it is highly manipulated by what properties they pick. Then they manually adjust and that gives them even more latitude to adjust for "quality of finishes" which is very subjective. 

Ultimately appraisers are not looking to find fair market value, but rather work to protect the bank and themselves. 

@Michael Corso

What’s “fair”? And it depends on why you’re getting the appraisal. For my purchases, I find the appraisal seems to be exactly what the purchase offer was. Which seems very, ummm, coincidental? For selling, I never get an appraisal. Appraisals are slight of hand and magic as far as I’m concerned.

@Michael Corso

Since some are giving examples, here is mine. Duplex purchased December 2018. Purchase offer $285k. Bank appraisal; $285k. Now purchasing an identical duplex 1 block away for $278k. Same bank, appraisal? Can you guess? Duplex worth $278k! Now, I’m not complaining. It’s just a number I needed to get duplexes financed. But it sure seems “weird”.

Not sure what you mean by FAIR, they determine(set) the market value. Fair isn't a factor

also, appraisers are human. subject to error, bias, and manipulation

I always have a person at my appraisals with a one sheet with before and after pictures, a scope of the work we performed, and the comps we believe best represent this property. That person is always attractive and knows how to deploy the 'charm offensive' 

That's how I get my most fair numbers ;) ;) 

@Lee Bell is most correct. Fair is a subjective term and different for each party involved.  Undervalued is really what I think you mean here.   (BTW NOBODY complains about overvalued appraisals until after a market crashes).

In the US, if you find your appraisal results unfair and quality declining, with your appraisers coming from 4 counties away to do the work, there is a simple reason.

The appraiser was the lowest cost appraisal provider the AMC ordering it could find, who would do the work in the fastest timeframe.

AMCs have a vested financial interest in paying the appraiser the least they can because they get paid on the difference between the appraisal fee and what the lender charges the borrower.

This is simply a race to the bottom and history has proven that quality is the ultimate victim and the most talented leave the industry.

@Alexander Felice is right, to improve your odds, you need to do the work and bring the best listing and sales comp data, with repair/rehab budgets and a copy of contract to the appraiser at inspection.  Pretty face optional, but reccomended.

Some of you should try reading the certifications and limiting conditions that are part of your typical appraisal on a Fannie Mae form. Yeah, I know. Most people look at the bottom line and that's it.

Market value is exactly what the appraiser is looking for. They even define market value.