Research suggests appraisals do not reflect sale prices

Difficulties experienced by consumers and real estate industry stakeholders may be caused partly by problems with appraisals, which new data suggests may be inaccurate in a number of cases.

Information on housing transactions suggests that thousands of purchase prices and appraisal values may have been heavily divergent, the New York Times reports. Researchers found at least 121 cases in which the appraised value of a unit was more than double the sale price, and another 132 in which appraised values were less than 70 percent of the sale price.

Appraisals are taken into account when owners consider whether to buy, sell or hold property, when banks and lenders are setting mortgage terms and rates and during other crucial decisions. About 64 percent of appraisals examined by researchers were higher than sales price, for a total of $1.4 billion in excessive estimates, while 35.5 percent underestimated prices by an amalgamated $661 million, the news source notes.

Some are calling for changes to appraisal procedures as a result. This could impact investors as they purchase or rent homes, and suggests it may be unwise to place too much stock in appraisals when setting rent prices. Some property management companies may help set rent levels by evaluating comparable local properties or using other methods.