Appraised value question

8 Replies

I often see homes advertised "50k appraised at 65k". Just an example. So does that mean one can buy the house for 50k then take more equity out of the property then 50k he used to buy it?? im confused here.

There is a short sale that I showed a client on Monday. Current list price 209,900 move in condition, upgraded. They have an appraisal over 325,000 because that is what the loan was drawn for last year. Watch out for anything but a current value appraisal with so many refinancing there have been many cooked appraisals.

the appraised value does not have anything to do with market value.

typically, it does...depending on

1. the approach used to appraise the property
2. who appraises it

banks will usually appraise the property in question right around or EXACTLY for what the sale price is and base their LTV on that sale price..even if the sucker is selling for 200 and is worth 500...

always remember




all an appraisal is is an "informed" estimate of property value.

Originally posted by "noobdog1":
the appraised value does not have anything to do with market value.

Where in the world did you come up with that?

The following definition can be found on all of the standard FNMA appraisal forms:

DEFINITION OF MARKET VALUE: The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus...

In an appraisal, the appraiser gives an Opinion of Market Value. Therefore, the appraisal is representative of the market value.

Appraisers have three approaches to determine value, although all three are not always used depending on the property. There is the Sales Comparison Approach which is based on similar recent sales, the Cost Approach which is based on a value of the land and the cost to replace the existing improvements minus depreciation, and the Income Approach which is based on market rents and a Gross Rent Multiplier which is detemined through market research.

Your other statement that banks will appraise the property right around the sale price even if the price is 200 and it's worth 500 is really disturbing.

First, banks don't appraise anything. Banks hire appraisers who are independent third parties with no interest in the property being appraised. Second, if you know of a transaction where the property was appraised lower or higher than the value and this was done on purpose both the lender and the appraiser should be turned into the authorities. That's a little thing we like to call FRAUD.


first of all, i love posts like this - people always jumping the gun trying to "correct" everyone else.

bank certified appraisers or appraisers who do appraisals for that a better description????

secondly - appraisals are just an estimate of value - and if you don't think that when an appraiser who does appraisals for banks doesn't come in RIGHT AROUND WHAT THE PURCHASE PRICE IS of a given property - you're dead wrong.

it doesn't matter if the property is worth 400k and the purchase price is 320k - the appraisal will be like 330k, period, end of discussion.

that's on a purchase price.

if you get your own appraisal, independent of the bank appraisal (the appraiser who does the appraisals for that particular bank) - you'll generally get a better, more accurate description of market value - for your investment needs.

FNMA is just a corporation that buys loans. of course they set the standards for many other lenders and set the conformity for loan applications. if FNMA says pink paper - the lender uses pink paper, period.

but FNMA ain't doing the appraisals.


I see where you are coming from, jlabelle, but I am going to have to go with noobdog on this one.

My experience is that over 95% of the time the appraisal will come back within 5-10% of the purchase price, if not at the exact purchase price. Now in my experience when I have seen an independent appraisal, it has always been drastically over what I would estimate as a realistic sales price. I laugh when someone tells me that they have an appraisal for so much. I always think well then why won't the house sell for that much?

In my experience and in my market, an appraisal has very little to do with true market value. It has to do with what the contract sales price says. I think this might have something to do with what happens when an appraisal comes back as too high or too low. If the appraisal comes back too high then the lender starts shimmying around about how something must be wrong somewhere if you are buying it that cheap. If it comes back too low the deal is dead. If the appraiser kills a deal, I'll bet you that the realtor and the mortgage broker will NEVER use that appraiser again. Not only will they never use them again, but they will tell all their associates to never use them either. An element of it comes down to the appraiser's desire to survive in business. So much and so many different people's paychecks hinge on if they can prove comps.

I have also heard it rationalized from appraisers that if someone is ready and willing to buy the house for that much and there are comps (in their opinion) to support it, then that is the true market value. The problem is that in most cases comps could be interpreted both ways, supporting the price and invalidating the price.

Comparable sales are always the most accurate way of determining fair market value, but when you are picking two or three out of a hundred to compare the subject property to, discretion comes into play, and with it human error.


DO NOT use a county appraisal as a determing factor of what the market value of a house may be, period.

Case in point, a couple of years ago I was a newbie seeking investment properties in Houston, TX when I came across a prospect I could not pass up. The asking price for a 3800 sq ft home was $150K; county tax assessment $279K. I thought WOW this is an excellent deal. Boy was I in for a surprise. The day I was going to sign the purchase and sale agreement I decided to have a realtor check comps for the street, neighborhood.

Come to find out comparables on the same street only sold for $168K, $174K, $179K respectively. This is a far cry from the $130K + equity I thought was tied up in the property. Needless to say I quickly scraped that deal.

Originally posted by "Ryan Webber":
My experience is that over 95% of the time the appraisal will come back within 5-10% of the purchase price,

I agree with the 5-10% statement. If it is a true arms-length transaction with the buyer and seller both being knowledgable about the market, then the appraisal should come in very close to the sale price.

However, there are many appraisers out their that just "hit the number" in order to make the deal go through. There are also plenty of us out there that do not. I have been appraising properties in Massachusetts for the past four years, and my values have resulted in deals being killed numerous times over the years. Yes, I've lost clients over it, but I don't care. I've spent a lot of time and money to obtain my certification, and I'm not going to toss that away for a few hundred dollars just to help a deal go through.

Here in MA, the market is declining in most areas and forclosures are on the rise. I will not be suprised at all to see some appraisers lose their licenses in the coming months and years. I've been hearing many instances of appraisers having their work from 2-3 years ago questioned because the property is now or soon will be in foreclosure. The skippies who were out there 'hitting the number" are going to find themselves in trouble.

I just find it odd that you guys don't think an appraisal has anything to do with market value. True, it is an "opinion" of value, but it is based on information from the market. The Buyer offers what is their "opinion" of what the property is worth. So in essence, everything is an opinion, until an agreement is reached and the deal is done. Once the deal is closed, we consider it a fact (or market value).

Yes I've lost clients over some of my appraisals. My feeling is if the client is going to stop giving me work, then that's a client I don't want to be associated with because they will probably get me in trouble in the long run. Here in MA, only the actual Mortgage Broker has to be licensed. The individual loan officers working for the broker do not, and many of the loan officers have no clue about the real estate market. For instance I went on an appointment a few weeks ago and the loan officer was there for my appointment. The owners had bought the property two years ago for somewhere around 340k (I don't recall the actuall number). The loan officer told me they had invested about 50-60k in renovations, so he figured it was now worth 400-420K. A dollar spent does not equal a dollar increase in value, plus the market is in a decline. I came in about 10-15k above the last sale, and all my comps were sales within 6 months. I would have had to use sales that were 12-18 months old to come anywhere close to 400k. While there are skippies out there that would probably include one or two of those old sales to increase their opinion of value, that's not a stretch I will make.

I ignore all estimates of values included on appraisal requests, and a good portion of my clients don't even put them on the order. The only time a look at the value is on a sale because I am required to review the sales contract. Many times the contract will include personal property (lawnmowers, TVs, etc.) and I am required to report that personal propety is involved in the sale. Those personal items are not included in my opinion of value.

I have also heard appraisers rationalize if someone is willing to pay a certain price, then that is the market value. But one must investigate the buyers motivations for purchasing that particular property. For instance, a while back I was appraising a loft style condominium unit in a new development. The buyers were paying about 20k more for the unit than any other unit in the complex. Keep in mind I had already appraised about 10 units in the complex. It turns out, the same buyer had already closed on the unit next door, and were planning on cutting through the common wall to make one large unit. They were overpaying, because they needed that unit to complete their plans. I came in lower than the sales price, explained why, and the lender agreed with my value and the deal still went through.

Appraisers are not employees of the lender. We are independent third parties who give the lender our opinion of the value of the property. The lender uses our report to decide if the loan is woth their risk. Appraisers don't kill deals. The lender has the final say in who they loan money to and who they don't.

Real estate fraud is all over the place, and one must beware.
Check out for some interesting articles.

The appraisals on refis of investment property I've seen lately are definitely conservative with respect to prior months. If you are financing your investment (or refinancing) I suggest:

1) Meet the appraiser vs. having someone let them in. Ask if they are a "junior appraiser" or a fully licensed appraiser who can do investment appraisals.

2) Gingerly offer them comparables you personally have knowledge of. They may glance at them but they all take the input. Sometimes lenders are going down a list and the appraiser is someone out of the area and very unfamiliar with recent comps especially FSBO's.

3) Give them previous layouts from other appraisals conducted -- They're always grateful. If they're new, give them anything that will help.

4) Make sure they are not doing an investment property as an understudy. I don't know of a lender/underwriter that won't require the property be assessed by a fully certified appraiser.

5) If you're trying to get rid of PMI, a STATE certified licensed appraiser is required and there are hardly any of those in our state. And you are required to have 70% LTV to even apply for release of PMI on most investor loans.