Appraisals are Fundamentally Flawed and Give Low or Incorrect Values
With prices moving quickly up and appraisers being conservative, nearly every transaction these days has a concern about getting the appraised value at the purchase price. Yes, things are worse because of the Home Valuation Code of Conduct, but I believe there are fundamental flaws in the appraisal system which leads to an incorrect and often low value.
1. Appraisers never go inside of the homes they are using for sold comparables. What this means is they read the comments in the MLS to get an idea what the inside is like. But those MLS comments will be skewed into describing all the positive features and none of the negative. Since the appraiser is inside the subject property, he/she can see both the positives and the negatives. So the subject property will always appear to be less desirable, and lower value, than the comparables because of knowledge of the negatives.
2. Appraisers do not spend time with buyers hearing what things they place value on. Buyers will pay more for a home that doesn't have popcorn ceilings, or has high ceilings, or is brighter, or has a big walk-in closet for example. I doubt appraisers are aware or are allowed to make such adjustments. Yet they may be giving value for things like dual pane windows which are expensive and have great functional value, but suprisingly are not an important feature to most buyers in lower priced homes. As buyers agents, we see what really makes a difference.
3. Appraisers know the purchase price before they determine the market value. Really, if they choose the comparables well and understand the current market dynamics, they should be able to come up with a price based on that information. As listing agents, we do that all the time.
4. Appraisers seem to cover a large geographic area on a regular basis. This means they cannot be specialists in knowing price variations that exist between adjacent neighborhoods as you would if you spent most of your time working those specific locations.
Appraisers do their best and the majority of time are a seamless part of a transaction. It is in times like these when the market is moving quickly which leads me to think appraisals are fundamentally flawed and give low or incorrect values. What do you think?
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