Why is my appraisal so much lower than I expected?
It has been my experience that although, Zillow and Redfin have slick websites and they make it easy for you to see how much your home is worth, they do more harm than good with inaccurate estimates.
Although appraisers are (mostly) human, their process is different from that of Zillow and Redfin. Those are what we call Automated Valuation Models (AVMs). The AVMs analyze much of the same data appraisers do then come up with an estimate of value. Sometimes they are astoundingly accurate, other times…not so much.
A word about the appraisal process, and how it differs from the AVM. An appraiser first describes the property in question, the “subject,” in a standardized way; gross living area, total square feet, room count, amenities, condition, upgrades, lot size, location and more. Next, he or she will identify other properties near the subject that have sold within the previous six months. These are called “comparable sales,” or “comps.” The appraiser will apply adjustments to the comps to make them equivalent to the subject. If a comp has 100 square feet more than the subject, for example, the appraiser will apply a per-square-foot factor, like $50 for example. In this example, the area difference of 100 square feet would mean an adjustment of $5,000 (100 x 50= 5,000). That number would be subtracted from the comp’s sale price, so if it had sold for $350,000, its adjusted price would be $345,000 if that were the only adjustment. The appraiser repeats the process for each of the comps, then calculates a weighted average to arrive at the estimate of value.
There is a certain amount of judgment involved in the process, especially when it comes to more subjective matters such as condition, upgrades, view, and location. One appraiser might deem that a recently remodeled kitchen was worth $10,000. He or she would add $10,000 from each of the comps for “inferior remodeling.” Likewise, he or she might decide that one of the comps that backed up to a golf course had sold for $20,000 more than similar homes because of that. He would subtract $20,000 from that comp for “superior view.” Some of these adjustments are for things that are somewhat subjective and don’t show up in the public records that the AVMs use for their calculations.
What appraisers don’t do is to deliver intentionally low estimates of value. When a homeowner, Realtor or lender believes an appraisal is incorrect, in some cases they can submit a request for a “reconsideration of value” and include the reasons why they think the appraiser’s opinion of value was incorrect. In some cases, if the appraiser was having a bad day, they might acknowledge that he made an error and change the value. But in most cases, they will stand by their initial appraised value.
Since AVMs aren’t human, they can’t have a bad day, but their values are sometimes quite a distance from the reality of the market because they can’t apply any human judgment to the process. Appraisers can and sometimes bring values in much higher, or lower, than Redfin or Zillow.