Valuation in a Vacuum

Appraisals and market analyses can be two very different values. Appraisals look backwards and market analyses look present and forward.

An appraisal should be a relatively scientific valuation based on square footage, features, amenities, quality of construction.

A valuation provided by a Realtor typically takes into account those criteria listed above as well as other items that may play into the potential buyers’ (and sellers’) emotional valuations that cannot be easily or readily quantified. Aspects of this intrinsic valuation may include criteria such as a property’s proximity to amenities, views, the feel of the neighborhood and other intangibles that may be difficult to value.

For far more detailed analysis by one far more qualified than I, visit the Matrix, by Jonathan Miller (archived: 2013). Pay particular attention to the post titled, “Appraisers: Relax, Everyone Already Knows the Number. (archived: 2006)”

One thing that has always bothered me, and this is not intended to be an attack on appraisers – Why do appraisers need a copy of the Contract to Purchase prior to their doing their valuation?

As a Buyer and Seller, it is vital to know what an appraisal means and how it affects at what price you can buy or sell.

More here as well:

With a fluctuating market, increased inventory, and housing prices dropping in many areas, the association says, having an appraisal is critical and valuable information.

That appraisal you had six or seven months ago when you refinanced? Not so relevant now.

Update 07-21-2006: Interesting story from the WSJ with this graphic (permanent link here):