All About Lapm Journal

Private Appraisals Vs. Bank Appraisals... What Is The Most Valuable Currency?

Feb 16

What's the difference between a "Bank" appraisal and a private appraisal for loan purposes? Will the valuations be different if an appraiser appraises a home for a lender and then appraises the same property for a private party on the same day?

A customer recently told me that their real estate agent told them that bank valuations are often overstated. Surprisingly, I've heard others state the exact opposite. Do appraisers tinker with valuations depending on who their customer is? Do they put on a 'conservative' hat for one sort of client and a 'liberal' hat for another? (In my perspective, the word "conservative" means "honest.") They have no right to do so. However, a tiny number of appraisers have dropped their standards and attempted to influence their value estimations to fit the needs of their clients. I was recently making an evaluation for a divorce, for example. An evaluation was likewise done on the other side. I examined their report as part of my preparation. The appraiser made multiple big unsupported negative modifications to get a lower value estimate than what is practical in that market, which was painfully obvious. I had extremely excellent market data that disputed their reporting (at least in my perspective). If I were a betting man, I'd wager that if the report was for a bank, the same appraiser would never have finished it the same manner.

I've also heard of appraisers being employed to undertake a pre-listing assessment in order to determine a home's market worth. This is done to assist the customer in determining a possible listing price. The issue is that a few unscrupulous actors appear to be inflating these types of evaluation values. To inflate value, they will employ superior sales or sales in superior places. They might also influence the value by making unsupported modifications. To their customer, they undoubtedly appear to be a hero. This condition becomes troublesome in a market when many market players are ready to pay more than market value. This is because it is occasionally found that the market value is not there after the evaluation is performed for the bank. It's generally the skilled appraiser who is made to appear incompetent.

A tiny percentage of appraisers may be ready to fabricate values, both higher and lower than what is supportable, while performing private appraisals since they believe there is a smaller chance of being detected. They may believe that there are fewer 'eyes' on their report. That may encourage them to do things they wouldn't do if the appraisal was for a lending institution, where their reports are scrutinized by several people and run through systems to discover flaws and potential value concerns. As a result, the same appraiser who manufactured an unsupportable value for a private customer would likely do the evaluation for the bank in a more 'conservative', that is, honest, manner. I'd want to point out that this does not reflect the majority of appraisers today. Unfortunately, it only takes a few bad ones to throw doubt on all appraisers' abilities.


There is a lot of misunderstanding regarding what type of value an assessment is supposed to portray. It's usually market value in home evaluations, unless the appraisal report specifies a different concept of worth. I've seen various articles on the internet claiming that an assessment does not represent market worth. These articles imply that assessed value is not the same as market value. These articles are not authored by appraisers and, with all due respect to the authors, demonstrate a lack of understanding of appraisals and market value. They frequently mix up market value with market pricing. When a lender orders an appraisal, they want to know what the market value is. When a person demands an evaluation for a different reason, the same type of value description is usually expected. This is especially true when it comes to home appraisals. The valuations should be the same if a bank requests an appraisal of a property and a private party orders an evaluation of the same property on the same day, using the same value definition.


Assume that two persons dine at the same restaurant on the same day. The steak supper they order is the same for both of them. The food on the dish should be relatively comparable, even though the meals are presented on separate plates. The restaurant would have an issue if one dish featured a considerably bigger steak than the other. What was the motivation for one individual receiving one thing while the other received something completely different from what they had requested? The same may be said about assessments.

One thing to keep in mind is that appraisers go through an intellectual process in order to arrive at a value assessment. The outcomes of the procedure are reflected in the printed assessment report. The outcomes of simply filling out the form aren't what you'd expect. Filling out a form is not the same as conducting an evaluation. Whether the evaluation is for a bank or a private entity, the method remains the same. So, if the appraisal is performed on the same day with the same definition of market value, the estimated value will be the same regardless of who the evaluation is for.

The form used to report the appraiser's conclusions differs significantly between a bank appraisal and a private evaluation. The Fannie Mae/Freddie Mac forms are utilized for the majority of loan business. It's crucial to recognize that a Fannie Mae/Freddie Mac form can't be used for evaluations that aren't for lending purposes. Take note of the INTENDED USE declaration included on their forms. This is obvious from the language used in these reports. In other circumstances, hybrid style reports are also being used. I normally utilize what are known as General Purpose Appraisal Reports for private business (GPAR). There are many different types of reports that may be utilized. It is technically not necessary to utilize a form. If an appraiser writes a value estimate on a napkin or even announces a value verbally, there should be a work file to back up that value conclusion and how it was arrived at. The type of report utilized should have no bearing on the appraiser's job outcomes. Some reports go into great detail on how the value was created. A narrative report, for example, is far more detailed in its description of how the value was created. However, whether the appraiser wrote the value on a Post-it note or typed it on a form, the value should remain the same. If the appraiser is reporting a value, they must have gone through the mental process required to arrive at that value in a credible manner.



The value estimate may be influenced by the client's assignment circumstances and the type of value sought. For example, a customer would desire the figure to match the market's normal exposure duration. A customer, on the other hand, may request an assessment with a value based on a 30-day exposure duration in a market where the normal exposure time is 90-120 days. In that situation, the valuations may change since a property may need to be reduced more heavily to facilitate a faster sale.
In the real estate industry, there are a variety of distinct sorts of value. They might all be worth different amounts. Here are a few examples.