An appraisal is [only] an opinion of value
... and opinions are often subjective rather than objective.
A case in point. My buyers were supposed to buy one condominium and one week before closing, they agreed to purchase a similar unit from the same seller at no additional cost or inconvenience to themselves. Long story short, they actually were going to be buying a slightly better property.
How did the appraisal go.
Believe it or not, the second property was appraised for a couple of thousand dollars less than the original and here are the comparisons favoring property number 2.
Third floor vs. second floor
Stainless appliances vs. white
Prettier color Corian countertops
New carpet and freshly painted vs. cleaned
Washer and dryer included vs. none
Pool and pond view vs. nothing special
While my buyers might have liked the appraisal to reflect the higher value they felt that they were receiving, the appraised value didn't really matter except for purposes of final loan approval.
Speaking of appraisals, someone asked recently whether foreclosures and short sales have to be considered as comparable properties for appraisal purposes. A new clarification from Freddie Mac (h/t Calculated Risk).
"The appraiser’s selection of comparable sales is crucial to providing an accurate opinion of value based on market data. With respect to comparable sales, the appraiser must choose appropriate comparable sales, and certify that the comparable sales chosen are those most similar to the subject property. In underwriting the appraisal, the underwriter must consider whether any adjustments are supported and are reasonable. The amount and number of any adjustments must also be considered. Typically, the higher the amount of the adjustments or the number of adjustments the more likely the comparable sales might not be representative of the subject property. Freddie Mac does not have requirements about what comparable sales the appraiser is to use. For example, we do not require appraisers to use Real Estate Owned (REO), foreclosure or short sales. However, if the appraiser determines that these are representative of the properties available to typical purchasers for the market in which the property is located, appraisers must consider their use." (emphasis added)
An appraisal is only an opinion of value and it doesn't necessarily equal market value. Market value is the price that a ready, willing and able buyer feels a property is worth. Sellers should not rely on the appraised value to set the price of their home but should use a comparative market analysis (CMA) as a preferred resource.
Thinking of selling? Get a free, no obligation comparative market analysis.