Can Appraisals Be Too High?

Can Appraisals be too High? Understanding Home Value Consequences

Real estate appraisals are very important in property deals. They give an estimate of how much a property is worth. They look at things like size, condition, and how much similar properties have sold for. But what if it is too high? Let’s find out.

High Appraisals: Good or Bad?

At first, it might seem like good news. It means the property is worth more than you thought. But a very high appraisal can cause problems.

For sellers, a high appraisal can make them think they can sell for a high price. If the property doesn’t sell for the appraised value, the seller might feel let down. They might even think about not selling.

For buyers, a high appraisal can lead to paying too much for a property. If the buyer later wants to sell the property and can’t get the high price they paid, they could lose money.

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Lenders: A Different View

Lenders also care about the process. They use the appraised value to decide how much they’re willing to lend for a property. If an appraisal is too high, the lender could end up lending more money than the property is really worth.

This can be a problem if the borrower can’t pay back the loan. The lender might not be able to get all their money back by selling the property. This is especially true if property values have gone down.

Appraisers: A Big Responsibility

Appraisers have a big job. They have to give accurate, fair property values. They have to follow strict rules to make sure they are reliable. If an appraiser gives high appraisals all the time, it could hurt their reputation. Lenders might stop using them, and they could even get in trouble.

High appraisals can also affect the whole real estate market. If properties are always appraised for more than they’re worth, it can make property values go up too much. This can create a real estate bubble, which can cause problems if the bubble bursts.

Challenging an Overvalued Appraisal: Your Options

If you receive an appraisal that you believe is excessively high, you do have options to challenge it. First, review the appraisal report meticulously. Look for factual errors, such as incorrect square footage, bedroom/bathroom counts, or missed renovations. Second, provide your appraiser with additional comparable sales data that you believe were overlooked, especially recent sales that might better reflect current market conditions. Third, you can request a “reconsideration of value” from the lender, who will then ask the appraiser to review their findings.

In some cases, if significant discrepancies persist, an independent second appraisal might be necessary. It is crucial to have solid evidence to support your claim, as appraisers operate under strict professional guidelines.

The Impact of Market Volatility on Appraisal Accuracy

Market volatility significantly affects the accuracy and reliability of real estate appraisals. In a rapidly changing market comparable sales data can quickly become outdated. If prices are soaring, an appraisal based on sales from a few months prior might undervalue a property.

In a declining market, using older comparables could lead to an overvaluation. Appraisers must stay acutely attuned to current market trends, sales volumes, and listing inventory to provide relevant valuations. Rapid shifts make their job more challenging. Both buyers and sellers should recognize that in volatile markets, an appraisal is a snapshot in time, and its relevance can diminish quickly.

Do Not Attempt to Influence the Appraiser Directly

It is important to avoid any attempts to directly influence or pressure the appraiser during their visit. Offering specific target values, providing biased information, or trying to distract them from thorough inspection can backfire. Appraisers must remain impartial and adhere to strict ethical guidelines, such as those set by the Appraisal Institute of Canada (AIC).

Any perceived attempt at influence can lead them to flag the report for review, potentially delaying your transaction or even resulting in a lower, more conservative valuation. Instead, provide a clear, organized list of all property upgrades and their costs, along with relevant comparable sales you are aware of, and then allow them to conduct their assessment professionally.

Avoid Clutter and Poor Staging

While an appraiser looks beyond superficial aesthetics, excessive clutter and poor staging can still negatively impact their perception of a home’s value. A cluttered space makes rooms appear smaller and less functional, hindering the appraiser’s ability to accurately assess the property’s true square footage and layout potential. Dirty rooms or strong odours also create a poor impression.

While you don’t need professional staging, ensure the home is clean, tidy, and free of unnecessary items. This allows the appraiser to clearly see the home’s features and understand its flow, contributing to a more accurate and potentially higher valuation. A neat, organized space helps the appraiser visualize the property’s full potential.

Conclusion

A high appraisal might seem like a win at first, but it can cause problems for sellers, buyers, and lenders. It’s important to look at the process in a balanced way. An accurate, fair appraisal is better in the long run than an inflated one.

Whether you’re buying, selling, or refinancing a property, knowing about the possible problems of high appraisals can help you understand the real estate market. Remember, the goal of an appraisal is not to get the highest possible value, but to accurately show the property’s true market value. [ 1 ]