Two appraisers can value the same property differently for several reasons, including timing, purpose of valuation, and the comparable sales (comps) they select. Below are key factors that often lead to such discrepancies:
- Date of Appraisal: Appraisals have a limited lifespan, especially in fluctuating markets. An appraisal conducted months earlier may be outdated if economic conditions have changed. Additionally, the effective date of the appraisal (e.g., in estate appraisals) could reflect a time long before the physical inspection, influencing the valuation.
- Purpose of the Appraisal: Different appraisal types serve different purposes, such as insurance (replacement cost), retrospective value (looking back at a point in the past), or current market value. If the appraisers are valuing the property for different reasons, their outcomes will naturally differ.
- Highest and Best Use: Appraisers assess the best use of the property, which might change the valuation. For example, one appraiser may view the land as best suited for development, while another may consider its current income-producing use (e.g., a mobile home park) as more profitable.
- Comparable Sales Selection: The comps chosen by each appraiser can greatly affect value. Factors like proximity, condition, and the type of transactions (arm’s length or otherwise) play a role. If one appraiser uses different comps or adjusts them differently, the valuation could shift substantially.
- Adjustments for Differences: Adjustments are made for variations between the subject property and the comps (e.g., number of bathrooms, condition of the kitchen). How these adjustments are calculated and applied can introduce variation, and inconsistencies or errors like “double dipping” (adjusting for the same feature twice) can lead to differing valuations.
- Reconciliation of Market Data: Appraisers must reconcile the data from the comps. Their final value must fall within the range of adjusted prices from the comparable properties. The process of weighing the data can vary based on their professional judgment, contributing to different opinions of value.
- Reviewing Appraisal Work: If discrepancies raise concerns of errors or bias, lenders can request a reconsideration of value (ROV), especially under new federal regulations allowing this process to mitigate risk.
When two appraisals show different results, digging into the reports themselves can usually clarify why, based on the detailed nature of the appraisal process.