How Can Two Appraisers Value the Same Property Differently?

As a real estate broker, one of the most common questions I hear from clients is, “Why did two different appraisers come up with different values for the same property?” While this can be frustrating for buyers, sellers, and agents, there are valid reasons why appraisals can vary.

Appraisals are professional opinions of value, but they are not exact science. The appraised value of a home is influenced by several factors, including the selection of comparable sales, market conditions, property condition, and the appraiser’s methodology. Let’s dive deeper into why two appraisers might reach different conclusions about the same home.

1. Differences in Comparable Sales Selection
Appraisers determine a home’s value primarily through the sales comparison approach, which involves analyzing recent sales of similar homes (comparable properties, or “comps”). However, not all appraisers choose the same comps, leading to variations in the final appraised value.

Example:
Imagine a home being appraised for a refinance. One appraiser selects three comps that sold within the last three months, all within a half-mile radius. Another appraiser, looking at the same property, struggles to find recent sales in that small radius and instead selects comps from a different neighborhood, which have slightly lower prices. This difference in selection alone could result in a discrepancy in appraised value.

Additionally, factors like square footage, lot size, location, and upgrades can lead to different interpretations of which comps are most relevant. In rural areas or markets with limited recent sales, the differences in comp selection can be even more significant.

2. Market Conditions and Timing
The real estate market is constantly changing. If two appraisers conduct their valuations at different times—say, one in a hot seller’s market and another during a market cooldown—the appraisals could reflect those shifts.

Example:
If a home is appraised in June when the market is highly competitive and prices are rising, the appraiser may give more weight to higher-priced recent sales. If another appraiser evaluates the same home in October, when inventory has increased and prices have stabilized, their valuation may be more conservative.

Even small time gaps can affect values. If new comparable sales close between the first and second appraisal, they might reflect a different pricing trend.

3. Subjective Adjustments and the Role of Gross & Net Adjustments
When an appraiser selects comparable properties, they rarely find homes that are identical to the subject property. To account for differences, appraisers apply adjustments—adding or subtracting dollar amounts for variations in features such as bedrooms, bathrooms, square footage, or condition.

Gross Adjustments refer to the total of all adjustments made to a comparable sale, regardless of whether they are positive or negative.
Net Adjustments represent the overall difference after positive and negative adjustments are balanced out.

Example:
If an appraiser uses a comparable sale that has:

– A larger lot (+$15,000 adjustment)
– One fewer bedroom (-$10,000 adjustment)
– No recent kitchen remodel (-$20,000 adjustment)

The gross adjustment would be $45,000 (sum of all individual changes), while the net adjustment would be -$15,000 (final difference).

Different appraisers may apply different adjustments based on their interpretation of market trends and buyer preferences. One appraiser may think a remodeled kitchen is worth a $20,000 adjustment, while another might value it at only $10,000. These variations in judgment contribute to differences in the final appraised value.

4. Property Condition and Features
The overall condition of a home can significantly influence the appraised value, and appraisers may assess condition differently. While major defects like a damaged roof or outdated electrical systems are clear red flags, minor differences—such as outdated flooring or curb appeal—can be subject to interpretation.

Example:
Imagine a home that has been well-maintained but has an older HVAC system. One appraiser may view this as a minor issue and not adjust for it, while another may apply a $5,000 deduction to reflect potential replacement costs.

Similarly, an appraiser who notices extensive wear and tear on a home’s interior might rate its condition as “average” rather than “good,” resulting in a lower valuation. Since property condition isn’t always black-and-white, the subjective nature of these evaluations can lead to different appraisal results.

5. Appraisal Methodology: Sales, Cost, and Income Approaches
Most residential appraisals rely on the sales comparison approach, but some cases require additional valuation methods. If two appraisers use different methodologies or weigh them differently, their conclusions may differ.

Sales Comparison Approach: Compares the subject property to recent sales of similar homes.
Cost Approach: Estimates how much it would cost to rebuild the home, factoring in depreciation. This method is common for new construction or unique properties.
Income Approach: Used mainly for rental properties, estimating value based on the potential rental income.

Example:
An appraiser evaluating a single-family home in a subdivision will likely rely entirely on the sales comparison approach. However, an appraiser assessing a custom-built home with no clear comps might put more weight on the cost approach, leading to a different value conclusion.

6. Lender Guidelines and Scope of Work
If one appraisal is ordered by a lender for a conventional loan and another for an FHA or VA loan, the appraisers may follow different guidelines that impact the final value.

FHA & VA loans have stricter property condition requirements. An appraiser performing a VA appraisal may flag a cracked foundation or peeling paint as deficiencies, requiring repairs before the loan is approved.
Conventional loans have fewer strict requirements, meaning an appraiser might not adjust for minor issues that a VA or FHA appraiser would.

Example:
If one appraiser deducts $10,000 for necessary repairs in an FHA appraisal but another does not make that adjustment in a conventional appraisal, the final values will differ.

What Does This Mean for Buyers and Sellers?
If you receive two different appraisals, it’s important to understand why they may differ rather than assume one is incorrect. Reviewing the comparable sales, adjustments, and methodology used can provide insight into the valuation process.

If a low appraisal threatens a transaction, options may include:

– Requesting a reconsideration of value with additional comps.
– Asking the lender to order a second appraisal (if allowed).
– Renegotiating the sales price or seller concessions.

Ultimately, an appraisal is an informed opinion rather than an exact science. By understanding the factors that influence appraisals and how adjustments are applied, buyers and sellers can better navigate the process with confidence.