A variety of factors—including timing, purpose of the valuation and comparable sales used—can lead to disparities.
September 23, 2024 | REALTOR® Mag | By: Melanie J. McLane
One of the most frustrating things for consumers, agents, and even appraisers involved in a real estate transaction is seeing disparate results in two or more appraisals of a property. Dig beneath the surface and you’ll often find good reasons for the differences. Here are factors to consider as you try to understand the two different opinions of value.
Estimated Value Isn’t Always Market Value
First, check the date of the appraisals. Appraisals typically have a short shelf life. In a volatile market, one that’s more than six months old will be hopelessly out of date. Even a more recent appraisal may become outdated because of a sudden economic shift, natural disaster or other occurrence. So, if a property owner supplies you with a pre-sale appraisal, check the date.
The date that really matters is the effective date of the appraisal, which may not be the same date the appraiser inspected the property. In the case of an estate appraisal, for example, the effective date is generally the date of the owner’s death, which could be several months, or even years, before the inspection.
Second, check the intended use, intended user and type, and definition of value. Appraisers must identify all three as part of their scope of work. If the intended use is “for insurance purposes” and the definition of value is “replacement cost of improvements,” then that appraisal is not valid for establishing an asking price to sell the property. Some of the other types of value that appraisers may be asked to estimate, to name a few, include:
Value in use (the value of the property based on its current use)
Retrospective value (the value of a point in the past, such as before a divorcing couple separated)
Value of a partial interest
Liquidation value
None of these are the same as current market value.
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