A massive, first-of-its-kind study of 1.3 million individual appraisal reports from 2012 through this year conducted by real estate analytics firm CoreLogic offers a suggestion: You should look at what are called adjustments to appraisals that involve relatively subjective estimations — the appraiser’s opinions on the overall quality level of your house, its condition, location and view — rather than more objectively determinable items such as living space square footage, lot size, number of baths and bedrooms, etc…
Adjustments are made in 99.8 percent of all appraisals, according to the CoreLogic study. The most frequent adjustments involve objective features of houses: Living area, rooms, car storage, porch and deck were all adjusted in more than 50 percent of the study’s 1.3 million appraisals, according to CoreLogic. (As a rule, the adjustments on objective features were not large in dollar terms. For example, room adjustments were made in nearly three-quarters of all appraisals but averaged only $2,246 and did not affect the final appraised value dramatically.)
Adjustments involving more-subjective matters — the overall quality or condition of the house — were less common, but they typically triggered much bigger dollar changes. The average adjustment based on quality was nearly $15,000, which is more than enough to complicate a home sale. Some subjective adjustments on the view or location of high-cost homes ran into the hundreds of thousands or even millions of dollars…
Research released last week by Platinum Data Solutions, which reviewed 300,000 appraisals made between July and September, found that fully 39 percent of “quality” or “condition” ratings conflicted with previous ratings on the same property. That inevitably invites controversy.
In other words, appraisals are an inexact science. What makes it particularly frustrating is that the stakes can be big as sellers and buyers are dealing with one of the biggest financial investments of their lives.
Two more thoughts about these findings:
- In order to cut down on the variation in findings, would it be better to regularly have multiple appraisers for the same property or some sort of blinded review?
- Here is how an example of big data can help reveal patterns across numerous properties and appraisers. But it would be particularly interesting – and perhaps some money could be made – if research identified individual appraisers who consistently had high or low findings.