A tale of three appraisals on one house

What do you get when you have three appraisers appraise one house? It sounds like the start to a cheesy real estate joke, but unfortunately there’s nothing funny about this scenario.

A home owner hired me recently for some value perspective after there were three separate appraisals done on his house for sale. Since there was a huge discrepancy between the values and contract price also, the seller wanted to find out what his house was really worth. So he hired me to review the appraisals and talk with him about the market. And yes, I have permission to share this story.

Background: His house in the Sacramento area listed at $210,000 and had 7 offers right around $210,000 (conventional, FHA & VA), and a cash offer at $198,000.  Some offers asked for 1-3% concessions back to the buyer, but others did not. The first accepted offer was $210,000 and the second was $213,000.

three separate appraisals

1Appraisal #1: This appraisal came in at $192,000. The appraiser made an adjustment for a declining market and a hefty adjustment downward for being located on a feeder street too. These adjustments essentially knocked off about $10,000 in value (and they weren’t supported in my opinion). All things considered, this appraisal looked low, especially in light of a pending sale the appraiser used in the report that subsequently closed at $195,000 (and was 200 square feet smaller with less upgrades – located on the same street).

2Appraisal #2: After the first buyer moved on, a second buyer came along. The contract price was $213,000 and the appraisal came in right at contract. All things considered, it just seemed the appraiser was maybe reaching for the contract price on this one. Still, it’s amazing to see a $21,000 difference between the first two appraisals.

3Appraisal #3: This was a review appraisal from the second buyer’s lender, and the value came in at $185,000. The reviewer did an exterior inspection of the property and the “comps” were simply not comparable. There is nothing similar about dirty distressed sales and the subject as a clean and upgraded home. Just because something has sold nearby does not mean it is a “comp”. This appraisal was good for nothing not the highest quality I’ve seen. The buyer was actually willing to pay the difference in cash between the contract price and a potentially lower appraised value, but the review coming back at $185,000 was a huge amount for the buyer to consider paying. This reviewer was probably paid very little for the job he did, yet his appraisal ended up playing a huge role in the transaction.

Any lessons we can learn? Situations like this aren’t pretty, but there are still some important take-aways to remember in this market:

  1. Appraisers, do a better job.
  2. Agents, be ready to answer questions and provide market insight to appraisers when they ask you questions about one of your sales or listings. In light of low inventory, it’s critical to obtain insight from real estate agents – especially on listings. Also, here are some tips for talking with appraisers in an HVCC world.
  3. Borrowers and owners, if you’ve at the receiving end of a bad appraisal, ask the lender what their process is for doing an appraisal rebuttal or challenge, and then follow their guidelines. You may need to offer new comparable sales, market data or possibly obtain a new appraisal. If the lender is not willing to work with the new data, and you feel strongly the original appraisal is not accurate, you may need to switch lenders. Keep in mind the appraisal sticks with the property for 120 days if it is an FHA loan, but that’s not the case with a conventional loan. It may be worthwhile to consult with an appraiser who is a market specialist in your area also. The appraiser cannot advocate for your cause, but can provide unbiased market research for you. Here are some tips for how to challenge a low appraisal.
  4. Let’s remember that market value and price are not always the same thing – even when inventory is low. Despite multiple offers, we won’t always see properties appraise at or above contract price.
  5. This market is not easy for anyone to interpret, yet it’s easy to blame various parties for a deal not working out – particularly appraisers. In the case above, the shoddy appraisal work was clearly to blame, yet that’s not always the case when a transaction goes south. All I’m saying is let’s give blame where it is due and when it is due, but be objective in our critique.

Any questions, stories or insight? Why do you think there is such a difference in appraised value in situations like this? I’d love to hear your comments below.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook


    • says

      Hi Rachael. The assignement wasn’t to give a precise value, but to review three appraisals and then give a broad conclusion of value. Value looks easily between 200-205K (possibly more). I wouldn’t bat an eye if I saw a sale at that level.

  1. Mark says

    Interesting that you said “the appraiser was maybe reaching for the contract price “, yet you had multiple offers (market indicators) of $210,000 and $213,000. You said “Value looks easily between 200-205K (possibly more)” That’s only a 3.76% difference. Do you really think that you’re that good? You even said yourself, “205k – maybe more”. We are to look at all market data and the subject is market data…and the subject not only has one buyer, but several. I think $213k is within a very reasonable range of comfort for market value of your finding. Stated measurements alone can be off enough to account for that little of difference, not to mention that you’re comparing similar sales and adjusting for variance that you are not exact with…no appraiser is. If the sale price is above your adjusted range and is beyond that breaking point of reasonableness, then yes, it sold for too much. But the subject contracts within 3.65% your opinion is very reasonable. Markets aren’t even exact…much less appraiser’s adjustments. You have lines of buyers saying that it’s worth it, an appraiser might want to listen to the market rather than tell them they’re wrong.

    3.76% accuracy…I’m not that good. I don’t know anyone who is.

    • says

      Mark, I was very humble about the sense that the appraiser seemed to be reaching for $213K. I hear “I’m not that good” constantly in appraiser circles and I buy into that. I never said “he is absolutely wrong”, but it did seem like there was a reach to some extent. You’re right that it’s not all that much different from my own estimation. The reason why I said “or higher” is because value might actually be higher if I was able to do a full appraisal (instead of review work). I don’t have a big problem with the difference actually, so I didn’t make it a big deal in this post. I do have a big problem with the other two appraisals that are essentially causing the owner to lose money. That is a big deal. I’m particularly dismayed at a review at $185K for reasons I mentioned above.

      The owner was really most interested in understanding how the three appraisals could be so different and which appraisals were legitimate. Should he listen to his real estate agent, the offers around asking price or the two lowest appraisals? I think I gave him a good answer.

  2. says

    I see this all the time. Thanks for sharing your insight. It may not be this way in your area but the quality of data the appraiser uses really matters in my market. We have a group of appraisers that share physical data on homes they appraise that are selling and it is the most reliable source for comp. info. Our MLS does not have gross living area so if you do not below to the appraiser database the only other place to get the info. is public records and it can be way off. I have seen some appraisals that have been way off because the data the appraiser uses is from county records.

    • says

      Thanks, Tom. We do have pretty good data in the Sacramento area (in most counties – not all). I’m glad to hear you’re collaborating with other appraisers. It sounds necessary, especially if you don’t have GLA data.

      Our profession is often full of lone rangers. It’s better when we band together though. That’s why I belong to a local appraiser organization (REAA if anyone local is reading and has yet to join).

  3. says

    Nice post Ryan, you do a great job of highlighting issues. We certainly see issues with appraisals in both directions. I just was tasked to review an appraisal and all the comparables were newly remodeled flips while the subject had no updating, nice condition but very dated and no discussion of this with all comps considered “similar” in condition (ok we dont use similar anymore but they were all rated the same). Appraiser stated multiple offers. Problem with multiple offers, it does not consider if the offers were to “tye up the property” hoping the appraisal comes in at what they consider value (much lower) or if they are making an offer where they believe value is. With such limited inventory I keep hearing and seeing offers made that the buyer does not believe is value but rather wants to get into contract and then negotiate based on an appraisal.

    We are in an interesting market. Great to see a move from abundant REO’s.

    • says

      Thanks Cynthia. Hmm, it sounds like an interesting assignment you have. I agree with you on the multiple offers. I’ve also seen the same thing over and over again. Multiple offers do not necessarily indicate value because sometimes buyers are motivated to offer higher for certain reasons – not because of value.

      It’s a tricky market out there. In fact, I just had a realtor tell me this morning that he would not want my job in this market. 🙂

      • Anne Graviet says

        What’s that old saying? “Appraisals are like opinions, everybody’s got one!” or, is it “Opinions are like appraisals, everybody’s got one!?” I forget… but anyways…

        This is a changing market, no doubt. For one, we don’t have much inventory; but for the other, we’ve still got a lot of Notices of Default. Then we have to check the micro-market for the Subject’s location and characteristics because real estate is hyper-local.

        Things have picked up, but that’s part of our normal selling cycle – Spring time is our busiest time and it comes after Winter.

        Until I see that HP is hiring more people instead of laying off 27,000 in October, I’ll go out on a limb and say I expect prices to be flat or fall slightly in the general market and predict a continued tiny rise in the condo and REO ghetto flippers market through the summer.

        But when they raise interest rates, our prices will fall again.

        • says

          I always love your straightforward takes, Anne. Thanks for sharing. I think unemployment and interest rates, inventory and interest rates can have a huge effect on the market. Sure, they can impact any market, but right now if one experienes a significant change, it may impact the surge we’ve been seeing lately.

          Some investors I’ve been talking to describe the market as going up in places like Elk Grove and Natomas, but declining in other areas on the resale side. There is no blanket statement to throw over all niches of the market to easily describe things. It’s really interesting out there.

    • Mark says

      Cynthia stated, “Problem with multiple offers, it does not consider if the offers were to “tye[sic] up the property” hoping the appraisal comes in at what they consider value (much lower) or if they are making an offer where they believe value is.”

      Buyers are signing a binding contract to buy a house over market value in hopes that the appraiser will knock the price down and the seller will sell at the appraiser’s value???? Come on, that sounds a bit too fantastic…a stretch that would make Reed Richards proud. If they think the value is X, then there should be houses at X price to choose from. What is more realistic is that the market value is what the buyer agreed to pay and they’re hoping that they will get an AMC green appraiser that lowballs the appraisal and the home owner falls under pressure to sell the property below market value.

      • says

        Mark, I’ve seen this happen and heard from buyer’s agents about this strategy too. You bring up a really valid concern of course, but this is one of the challenges that appraisers need to sift through in today’s market. It’s definitely not every case, but it’s happening and appraisers need to consider why buyers are offering at certain levels. Inventory is literally only at one month in the Sacramento area, which is incredibly low for our market, so competition is fierce. Ths means buyers are more prone to offer more out of strategy to get a contract accepted – not always because they believe the house is worth X amount.

        I’d be curious to hear from any real estate agents out there.

      • Cynthia says

        Mark you dear, you sound pure of heart. I have run into this on a number of occasions and have had agent’s tell me they help their clients sift through offers when there are multiple offers to weed out the offers that appear to be inflated to tie up the property. I even had one buyer’s agent request a reconsideration of value because the appraisal came in at sales price. The subject home was completely remodeled and the sales they sent for reconsideration were all fixers.

        Fortunately this is not the “norm”; however it does complicate analysis of a sale when motivations are unclear.

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