Why did the appraisal come in $100,000 lower than the contract price?

I was hired recently to do an appraisal and the value came in far below than expected. Why did it come in so low? Was it something I did wrong or was it the market? There are of course some botched appraisals out there, which is unfortunate to say the least, but sometimes a contract price is simply out-of-sync with the market. Let me share an example of a legitimately “low” appraisal.

All sales in neighborhood vs similar sales - by sacramento real estate appraiser

The subject property is in contract at $370,000, which would literally be the highest sale in the neighborhood over the past five years. Of course it just might be worth the most because one property has to take that honor, but in the case such a high value starts to seem suspect when all competitively sized properties have topped out at $300,000 as you can see from the yellow dots. If all other similar sales are selling far below the contract price, that usually speaks volumes about what the market is willing to pay (unless of course there is a reason why the subject property is worth profoundly more).

contract price vs similar sales - by sacramento real estate appraiser

This graph helps paint an even more compelling story of value and shows the disparity between a lone-ranger contract price and the rest of the market. If this was a custom home or there was something incredible about the property, it might make sense to see such a difference in value, but this is a very standard tract home and it ended up being worth close to $100,000 less than the contract price. Yikes. But based on the graphs above, doesn’t it makes sense? Wouldn’t it seem suspicious if the appraised value and contract price were the same in this case?

How to Challenge a Bad Appraisal: This is a clear case of a property being overpriced, yet there are certainly scenarios where the appraisal is simply off-base. In case it’s relevant, I wrote a piece on BiggerPockets.com about how to challenge a legitimately low appraisal. I included a downloadable format to use too. It’s free. Go get it HERE. I hope my tips and format are helpful.

Question: Any further thoughts or stories to share?

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  1. says

    Very good data to back up the low appraisal Ryan. I don’t think there is a lot of room for interpretation here as the numbers speak for themselves. I also like to throw in competitive listings so the owner and lender can see what the subject property would have to compete with if it were on the market.

    • says

      Thanks Tom. I think the listings are a good idea as you mentioned. It was my goal to make things clear to help illustrate the market. I think graphs like this can help do the trick since they provide a good context for the market. In fact, my client thankfully thought my value was justified, so they did not question me on it.

    • says

      Thanks Wendell. Your graphs are amazing, so I appreciate that. I prefer the way Gnumeric feels. I do use Excel regularly too, but I find myself gravitating toward Gnumeric because it feels a bit less mechanical so to speak. What do you use?

  2. says

    Thanks, Ryan. I do appreciate the graphing compliment. I use Excel-both 2003 and 2010 versions. I’ve tinkered with Gnumeric a little (after taking a trend analysis course from George Dell) several years ago. For me I never could get Gnumeric to save a “template” of my custom graphs, so I would have to start at Square 1 every time. Thus, I’ve just pretty much stayed with Excel.


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