Real Estate Appraisals - Ten things most people just don't understand about them

Photo: Mike Wilson

Most of us will have a real estate appraisal done at some point in our property-owning lives, and yet, as common as that experience is, there are many misconceptions about what an appraisal is, why one is needed, and how truly it reflects the value of our homes.  

I am a Maine licensed residential real estate appraiser with four years' experience; however, prior to getting my license I worked with my husband, Bert Smith, who has been a certified residential appraiser for more than 20 years.

Let's take a look at some basic questions and some common confusions about those appraisals:

  1. What is an appraisal?
  2. Are there different kinds of appraisers?
  3. Why get an appraisal?
  4. The different types of home appraisals
  5. Who owns an appraisal?
  6. What's the difference between appraisal and assessment?
  7. How long is an appraisal good for? 
  8. Appraisal?  Home Inspection?  And the difference is?
  9. The final estimate of value
  10. Don't like the appraisal?  Not fair, not accurate?  What you can do 

If you have any questions that are not covered by this article, I'll be happy to answer your specific questions in the "Ask an Appraiser" thread in the forum.

1.  What is an appraisal?  
It is an estimate of value based on data gathered by the appraise, a process that  is done through an inspection of the subject property, then comparing that property  to recent sales of  similar houses located in like neighborhoods, as close to the subject property as possible.  

Before we move into a detailed explanation of the inspection, data gathering and reporting aspects of an appraisal, let's look at more information.

2.  Are there different kinds of appraisers?  

A residential real estate appraiser starts out as an apprentice, taking basic required appraiser coursework and working for two years under the direct supervision of a fully licensed appraiser.

A licensed appraiser covers single family homes up to a million dollars and can also appraise multi-family buildings up to four units.   A certified residential appraiser does those too, but also deals with properties over $1M.  A certified general appraiser can do both residential and commercial properties and is often called on for appraising complex properties.

"I have an in-home business - a daycare.  So, do I have to get a commercial appraiser or can a residential appraiser do my appraisal?"  Absolutely.  We'll talk more about this in a future article.

3.    Why get an appraisal?  cute green house

If you are buying or refinancing a home, the lender will want an appraisal done as he needs an impartial, professional opinion of value on the property to protect his equity in the property.  If you default on payment, the lender can be assured of recouping the value of his loan to you.

If you're thinking about selling your home, you may want an appraisal to get an idea of the home's value before talking to a realtor or attempting a for-sale-by-owner.  Appraisals are also done in divorce situations and for estate planning and  settlement purposes.  

We usually get a surge of requests just after a town has done a property tax revaluation, as people question their steeply increased assessments.    Because the purpose of the appraisal is key, we work under somewhat different guidelines when doing an appraisal for a lender versus doing a private one for a homeowner, an attorney or an accountant.

"My husband and I are getting a divorce.  Should I have my own appraisal done?"  Wise idea, although ideally both your husband's and your appraisal should come in at similar values.   BUT, this raises an important point:  an appraisal is done under the direction of the person ordering it; thus, your husband may instruct his appraiser that he is looking for a conservative value, while you might want your appraiser to look at the high end of the value range.  

4.  The different types of home appraisals

While appraisals requiring both an exterior and interior inspection of the property are the norm, an exterior inspection only, called a drive-by, may also be ordered.  Obviously not as comprehensive, a drive-by is likely to be used when there's little question about the value of the home supporting the loan amount requested.

5.  Who owns an appraisal?    cute cottage

This is one of the trickiest and stickiest areas we deal with.  The person (or company) ordering the appraisal owns it, and all the information contained in that report.  We cannot release any of that information to anyone else - period -  without written authorization from the orderer.  

"But, wait a minute, I paid for the appraisal.  And now you're saying you can't even tell me what the final  figure is?"  That's right.  We often get the homeowner who wants the house and the broker who wants the sale calling to see if the property appraised, came in at the value necessary.  We absolutely cannot release that information to anyone but the lender, and then the lender can share the appraisal with the client, the realtor, etc.

"My deal feel through with lender ABC, and now I'm going with XYZ.  Would you please send them a copy of your appraisal."   Nope, can't do that.  ABC owns that appraisal and it cannot be re-assigned.  

6.   What's the difference between appraisal and assessment? 

First, these two types of home valuation are done for different purposes and within different time frames.  Assessments are done on a town-wide basis usually for purposes of equitably levying taxes.  

Revaluations of a town's residential properties, in our home state at least, are mandated every ten years to reflect ongoing market factors  and new trends in the values of new and older homes, waterfront properties, condominium projects, even the newer age-related (Plus 55) communities.  

An appraisal focuses on a specific property and ideally pegs its value to similar houses that ideally have sold within the past six months, and which are within a mile of the subject property.  Needless to say, those parameters aren't always workable.  

For example, when we appraise a multi-million dollar property with deep waterfrontage, we may have to go way up and down the coast of Maine to find truly comparable properties.  And of course the same applies when we're appraising homes in small  rural towns that may not have seen many home sales in the past year, let alone of houses like the subject.

Second, the final figure in an assessment may only be a percentage of the total value of the property.  What does that mean?  An assessment ratio means that the figure your hometown places on your property may only be 80% of what was determined to be the fair market value when the valuation was done.  

"The town has my house assessed for $100,000, yet your appraisal came in at $275,000.  How can that be?"  Well, the assessment could be based on seriously outdated figures, especially considering the hot market and rapidly accelerating values of the past few years.  And, the assessment may only be a percentage of the originally determined value.  

An appraisal is a more accurate reflection of what you could reasonably expect to sell your house for in today's market.

7.  How long is an appraisal good for?  rose seidler house

It can be used for a lending decision up to a year after completion, but in today's challenging real estate environment, a lender might not want to go over six months.  But, that can be handled through a re-certification of value, so that the borrower doesn't have to pay for a whole new report.  

It is important to note here that an appraisal's estimate of market value is always stated as of a specific date, the date the property was physically inspected.  

"For Pete's sake, the new garage is almost done, the materials are all here,and the appraiser could certainly see that."  Homeowners really struggle with this one, especially if they're building a new house and those last little things aren't quite done at the final inspection.  They want us to consider it, report it, done based on their good intentions.  Wrong!  

Legally, we must say only what we see when we're seeing it.   It's a snapshot of the property as it is at that time, period.   Suppose there's a fire, a flood, or the contractor walks off the job... it's very easy for a home's value to change drastically in 24 hours.

8.  Appraisal?  Home Inspection?  And the difference is?  

Big, very big!  For an appraisal, we look at things that may present health or safety issues such as a cracked foundation, exposed wires or broken plumbing.  Our reports include only "readily observable items and surface observations."

While we make sure there is running water and a functioning heating system, we don't test those mechanical systems, and we don't make recommendations beyond repairs needed to address any observable health/safety deficiencies.   

Home inspectors and appraisers have very different licensing requirements, in states that even require a license for home inspectors!

9.  The final estimate of value san francisco homes

This is the bottom line, the only line a lender, broker, home seller or others really care about, the final figure for the estimated market value of the property.  

While we appraisers have been accused of reading chicken innards to arrive at that figure, we have do have clear, consistent guidelines we must follow, with professional discretion of course.  Appraisers countrywide use a standard forms and the most common type of report for a single family home is the 1004, developed by Freddie Mac and Fannie Mae.  

Because these two entities are the biggest mortgage lenders/backers in the country, they've determined the industry's standard reporting criteria.  

10.  Don't like the appraisal?  Not fair, not accurate?  What you can do 

Ask questions and discuss with the appraiser what you don't understand or what you believe are discrepancies, errors.  We're not infallible!  (Sorry, guys, I know that'll come as a shock!)  But, accept, too, that the appraiser approaches things from a very different perspective than the broker, lender or homeowner does, and that's our job!

"The house right next door sold two months ago for $23,000 more than the value the appraiser put on our house, and we have a two-car garage that house doesn't have."   Ahhh, yes, we do hear this frequently.  But, that neighboring house may have substantially more space, an updated kitchen/baths,  a finished basement or any number of other amenities that offset any value the garage would add, differences that aren't perhaps obvious at a glance.

"I had an appraisal done and the jerk didn't even count the family room, two bedrooms and bath in the basement!"  So just what do we appraisers look at and look for when we inspect your house?  How do we compare your house to others?  How do we decide how much an extra bay in the garage or an updated kitchen is worth?  Stay tuned!  In my next article, I'll detail the process.  And tell you why those basement rooms don't count!

If you have any questions that are not covered by this article, I'll be happy to answer your specific questions in the "Ask an Appraiser" thread in the forum.

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Real Estate Appraisals - Ten things most people just don't understand about them

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Guest's picture
poor and broke

If racial discrimination is wrong, why is age discrimination okay?

Guest's picture

This is very helpful. Thank you for posting this. I'm trying to learn all I can about real estate and this is a great start.

Guest's picture

Thanks for the explanations.

Last fall, we dealt with an appraisal coming in for the house we were buying lower than the agreed-upon price due to some of the things you mentioned- we have an odd house for the area, so the appraiser was unable to find other recently-sold 100-year-old houses on an acre in the midst of all the new suburban development in our county. We objected to the houses he DID use to compare our property to, but understood the difficulty, and I suppose the numbers worked to our favor, but it was a hassle.

Guest's picture

Additionally, an appraisal provides valuable information for the buyer and the seller, but the appraiser's primary mission is to protect the lender. Lenders don't enjoy owning overpriced property any more than they relish lending money to irresponsible borrowers. That's why the appraisal takes place before the lender grants final approval of the buyer's loan.

Also just a tip, a transaction can sometimes survive a "low" appraisal if the seller reduces the purchase price, the buyer makes a hefty down payment or a separate escrow account is set up to fund repairs that will increase the value of the home. On rare occasions, an appraiser will reconsider his or her opinion if new evidence supports a higher valuation.

Fix My Personal Finance

Guest's picture

The comparison appraisal technical is by far the most readily employed for residential properties, but investors should only use such comparisons as an approximation. Ultimately, the income approach is far mroe useful and employs discounted cash flow techniques to capitalizing cash flows. The bottom line for long-term investment value is not what a comparable property sold for down the block, but what rate of return cash flows represent relative to invested capital.

Guest's picture

CONGRATULATIONS! You have won the Mrs Nespy’s Frugal World Gold Medal for August 23rd. Go to to get the code to post your medal if you’d like. Thanks for the great writing!

Guest's picture

Excellent article, very well written.

Guest's picture

I am still a certified residential appraiser in California, but I have not done an appraisal for ove two years because I do much better in my online business. This is an excellent post. Contact me if you would like to be a guest blogger on my real estate blog.

Guest's picture

If I have a house to sell and I'm not under pressure can a self-educated seller come close to the expected appraisal value ... let's say with less than 10% difference?

Guest's picture

I'm helping her get her taxes adjusted for her dropping home value, thanks for all the insights into appraisals!


Guest's picture

It is my understanding from the aforementioned articles that the appraised value does not have to meet the amount of the loan that you are trying to access.
Is this a correct assumption?
If so, is there a place on the current appraisal form to figure out what it would cost to replace my home without the cost of the land?
I am trying to lower my mortgage payment amount and I thought if I didn't have to carry so much homeowners insurance and I increased the deductible that would help to lower my monthly insurance payments (which are rolled into my mortgage payments)
Can you help me?

Guest's picture

You're right, Turdy, that the appraised value of a property should be/MUST be completely independent of and not influenced by any expectation.

It sounds as though you're hoping to get rid of your PMI payment, which is insurance on the mortgage itself. Or is it your homeowner's insurance you're hoping to reduce? If it's the PMI you're hoping to get rid of, talk with your lender as that is very possible depending on the terms of your mortgage and how much equity you've built up.

If it's the homeowner's insurance, than this is something you'd really want to think over carefully, and talk over with a well-qualified independent insurance advisor,as it could be a false economy should anything happen to your home.

Raising your deductible is always an option, but again, you need some good advice based on the specifics of your situation.


Guest's picture

Lets say that a home has an assessed value of 45,000, but an appraised value of 17,000. Will the property taxes for the new purchaser be lowered due to the appraised value of the home, or will the property taxes remain the same, even though the appraiser states the home is only worth 17,000?
Thank you very much, Kara

Guest's picture
Prolink Solutions

The assessed value will remain the same, however you may contest the current tax value to the assessor with a current appraisal and they will do their own research/appraisal and you may get some tax relief with this process.

Guest's picture

My ex husband and I were told by the Judge to get an appraisal of the house I live in. I would like to use an appraiser that I have used before, He wants the name and number of that appraiser so he can ask him some questions. I'm leery because I have seen my ex try to influence other appraisers. I just want an honest appraisal as this will affect my retirement after the final dust settles. Do you have any advice for me?

PS I live in CA

Guest's picture

I attempted to get my house refinanced. I had a full blown appraisal done 8 months earlier through a VA appraiser. I decided to change banks since I wasn't satisfied with the rates since it appeared they kept going up. Recently, I decided to go with a local bank and they send out an unlicensed appraiser who evaluated my home. The value dropped by 60K. I live in a neighborhood where the supply and demand is steady. Construction of new homes are constant. The appraiser compared my house to ones that were not equal, older, or smaller than my home. She also made mistakes regarding my roof. I brought this to my lender but to no avail. Can this happen? Nothing has change in the neighborhood or my home.

Guest's picture

I had a contract fall thru because the appraisal appeared to drive down the value 10%.
1. Ingnored higher sales which were within 6 mths and 1 story like our home.
2. Cherry picked lowest price sales with most being 2 story.
3. Used a home not sold and still active 4sale. Again a 2 story, but also the lowest price home of 5 others 4sale.
4. Had few comps and none for 2 story vs 1 story or our larger lot size .45 acre vs rest were .33 acre.
5. Skewed the value by including mystery comps.
The inpact was the assessment showed our home at a value less than the other lowest price homes.

Guest's picture

We had an appraisal done on a split level home sold as a 4 bedroom 2330 sq ft and it appraised as a 2 bedroom 1300 sq ft. The lower level had a family room and 2 bedrooms and 1 bath. How can this be knowing most split levels have liveable space on both levels???

Guest's picture

Appraiser made a discrepancy on his report to the lender saying we only had a carport We actually have an enclosed, remote-controlled, double-door garage with storage area in the back. We notified the realtor who in turn notified the lender who in turn sent the comments back the appraisal board who twice said the appraisal stands as is. After that the sale fell apart and was cancelled.

What are my alternatives? Frankly I'd like to sue someone over this!

Guest's picture

I had an appraiser appraiser my home $200,000 lower than a real estate agent. I decided to get in a few agents in to see if they had a difference in price.. The agents are all close in price. The agent told me that the appraisers comparables were not comparables and that my home would be considered a luxury home..The comparables from the appraiser were not similar to my home and 1 was not even on a lake..I am on 270 ft lakefront. In order to get comparables you would have to go to a location 6 minutes from here. The appraiser also told me that homes are like cars they depreciate over the years..Ummm I am thinking that is not true.