Home appraisals for the purpose of securing a mortgage are on of the most misunderstood aspects of the lending process. Perhaps the confusion is caused by comparing an appraised value for what a Realtor might list your home at for sale. These are very often not the same thing.
When a listing Realtor prices a home, they are often trying to push the value as high as possible to give the borrower a favorable return on investment. Oftentimes they position the price as a way to negotiate price as well. Anyone who has been a homeowner for some time knows that these prices are strategically set to achieve client goals for return and timing.
Banks and lenders do not look at home values through the same prison. They are not primarily concerned with a sales strategy, they are focused on assessing the collateral which will cover their risk in the loan. Thus, they tend to take an inherently more conservative approach. In most cases they want to look for homes of comparable size and quality that have sold within a mile radius or less in the last ninety days. When comparable sales are few and far between, value becomes harder to assess.
Many people don’t realize that after the financial crisis of 2008, there were many new regulations concerning appraisals. The lending industry had been too liberal in its policies and many collateral values were grossly overstated. As a consequence, mortgage consultants can no longer have direct contact with an appraiser. Many steps have been taken to assure that the opinion of the appraiser is fully independent.