Connect with us

Opinion Editorials

Bad appraisals killing real estate deals – is there a solution?



The tiresome issue of the misunderstood appraisal

Raise your hand if you’re tired of hearing about low appraisals in the news.  Raise your other hand if you have no clue what the definition of a “faulty appraisal” even is.  If both of your hands are in the air, that’s awesome, mine were.

Let’s go back to class here for a second. An appraisal is an opinion of value, it determines how much a home is worth on a given day and time, based on age, size, condition, and several other factors. There are three methods on how this can be done – the income approach, for commercial or (duh) income producing properties, like multi-family homes, the cost approach, often used for manufactured homes, and occasionally for new construction – how much it literally costs to build or rebuild a home, and finally the most common, is the comparison approach, using active and sold comps in the neighborhood. 

When done for a home purchase, an appraisal is done to protect the bank from lending more money on a home than it’s worth. It isn’t completed to meet the agreed upon price in the contract. It’s not there for the buyer’s peace of mind. It sure as heck isn’t there for the seller or Realtors involved. The lender is the client, they are the ones who are insuring their investment in the transaction by getting an appraisal ordered.

NAR and NAHB members claim lost deals

For nearly a year, between 10 and 18 percent of NAR members surveyed have reported at least one deal which has been delayed or killed due to appraisal issues. Usually the issue is that the appraisal is not meeting the contract price, and either the transaction falls apart completely, or the sales price needs to be renegotiated. Recently a report was released by the NAHB, wherein they are also reporting issues with appraisals. Within the last six months, of their surveyed members, roughly 60 percent said the appraisal was less than the contract price, and about half said the appraisal was less than the cost of building the home.

Both groups are trying to correct the problem of problem appraisals. In a NAHB statement on December 8th, they note they have been holding appraisal summits in Washington for several years with banking regulators in order to urge change of appraisal practices. One of their major concerns at this time is the use of distressed comps in new construction sales. NAR will be hosting a webinar in January with suggestions to make sure appraisers are qualified. Questions Realtors can ask when meeting an appraiser at a home, ensuring they know about upgrades, and providing neighborhood comps.

Not all appraisals are bad, but when they are…

This is all well and good. It never hurt anyone to be more informed about a property. However, to me, a crappy appraisal is one that isn’t up to standards, that is completed sloppily, inaccurately, one that doesn’t take all information into account, one in which data is falsified. Most appraisals are of quality, but when they are bad, they are really bad.

Not meeting contract price, for whatever reason; the home was overpriced to begin with, it was over-improved, the market is rapidly declining- possibly due to job loss or other economic issues, the market is driven by distressed properties, or even the condition of the home itself, this simply is not a reason to get into a huff. And I kind of have to say tuff tiddlywinks. The contract price, and sometimes even upgrades, don’t mean a whole lot, when the rest of the immediate area can’t support the value.

Katie Cosner, occasionally known as Kathleen, or KT, is a Realtor® with Cutler Real Estate and is active in her local Board of Realtors® on the Equal Opportunity & Professional Development Committee. She has been floating around online for a number of years, and is on facebook as well as twitter. While Katie has a few hardcore beliefs, three in the Real Estate World to live and die by are; education, ethics, and the law - insert random quote from “A Few Good Men” here. Katie is also an avid Cleveland Indians fan, which really explains quite a bit of her… quirks.

Continue Reading


  1. Ben Goheen

    December 16, 2011 at 1:39 am

    Since every area is different, so having a nationwide regulation against using a distressed property to new construction is bogus. A new construction appraisal I did a couple months ago came in low because there were TONS of 1-5 year old (bank owned) homes in the area selling for $20k less. You can't justify a higher price just because the builder won't break even – not my problem.

    What's worse, a 'faulty' appraisal or completely inaccurate information listed in the MLS? Unfortunately the latter is way more common.

    • Kathleen Cosner

      December 16, 2011 at 7:25 am

      Agreed Ben. My fav example is this: A person can *ask* whatever they want when they sell their home, there's no law against it. There's nothing stopping Buddy the Dog from throwing a For Sale out front and a list price of $500k. Just like there's nothing stopping Xena the Kitty from agreeing to pay that cool $500k. However, if the house is only worth $100k, that's all *any* bank will ever lend on it. Ever.

      • John

        December 27, 2011 at 2:24 am

        I must disagree with your view on the appraisal world of today. I am a former real estate agent, and current part time builder, in that I own a company with a partner that builds entry level spec houses. (Although we have not built one in over 3 years) The last house we built had an offer put in on it, contingent on an acceptable appraisal which the buyers were to have done. The appraisal came in under their offer, although not drastically, but they did show me the appraisal. One of the "Comparables" was a 5 year old foreclosed house, that I had been through when it was for sale. The home was a true distressed property, as there was a lot of damage done before it was foreclosed, and it was build with cheap material and with some pretty shabby workmanship.

        I also refinanced my own home 1 1/2 years ago, and there were only 3 comparables used, due to the lack of them. My home is a 19 yr old 1940 sq ft, full brick, full basement ranch, constructed not the best material, but above average. One of the comparables was a 2457 sq ft 2 story, vinyl siding without a basement that sold for $210,000. Sorry, this is not a comparable! The most recent sale of the comparables was a 6 yr old, 2064 sq ft, full brick ranch with basement. Of the 3, this was the most like mine, and sold for the highest amount at $284,000. The 3rd was sold almost 12 months earlier and was a 34 yr old 1750 sq ft brick ranch with basement, that sold in less than a month for $170,000, to settle an estate.

        There ARE many issues with appraisals today that need to be corrected. The biggest is using foreclosures as comparables for new construction.

  2. Rosemary Gleason Reed

    December 16, 2011 at 9:23 am

    Specializing in Short Sales appraisals are critical to successful marketing when shorting an FHA loan. Last year I received an appraisal well above what the comps showed and upon review found it was based on a ranch, a bungalow and a colonial. (This home was a 90 year old colonial in a neighborhood made up of almost identical homes. ) Here's the kicker…the colonial used was actually an ACTIVE listing. Armed with all this to show it was sloppy and inaccurate, I still fought that appraisal through HUD for months and never got anywhere.

  3. Roger Perez

    December 20, 2011 at 9:17 pm

    I have been a real state broker, appraiser and builder for 25 years and have seen a lot of both sides of this argument. To Realtors and builders a bad appraisal is one that they dont agree with. Your article is good for the most part, unfortunately some Realtors and builders dont have a clue of what they are doing, they are priamrily salesmen, thats all. Some houses are appraising at less than construction cost because "cost does not equal market value". There are scores of beautiful , brand new houses sitting empty. They are only worth what somebody is willing to pay, which right now is nothing. You said it well with the cat and dog story , anyone can ask or pay whatever they want for an item, if the buyer pays cash there is no appraisal and he can overpay all he wants. The appraisal is only there to help the bank decide how much they are willing to lend (risk) on a deal, its not there to help an uninformed buyer to buy an overpriced house that some real estate agent told them what a great deal it is.

  4. Bill Ding

    April 25, 2012 at 11:56 pm

    Ben said; “. A new construction appraisal I did a couple months ago came in low because there were TONS of 1-5 year old (bank owned) homes in the area selling for $20k less. You can’t justify a higher price just because the builder won’t break even – not my problem.”

    While I agree that an appraiser is not to give a misleading report so that the builder won’t lose money, I’m going to have to strongly disagree with the broad brush that was used with REOs and New. If Ben had said that there were other non distressed arm’s length new construction that were similar selling for $20k less, then I would agree. But you have 2 factors that you are not factoring.

    1. New construction, (aka C1 UAD rating) vs Previously owned (aka C2 rating). Like new cars, people value new over used. Same can be seen with homes. Why do you thing that Fannie makes appraisers label new as C1 condition and previously owned, like new as a C2 rating. If your subject is new…you need to compare apples to apples. On that note, you can’t use land sales with construction costs. You need to compare a completed construction open market sale. You also need to use other developers to avoid scams, inside dealings, straw buyers, etc.

    2. Using distressed sales as comps. More often than not, there is a market reaction towards a REO and Short Sale. This needs to be taken into consideration. The bank did not want to own that house, they are not in the RE market and they have a huge problem on their back with all these foreclosed homes and they need to get them off the books. It is a distressed sale. There is undue stimulus to sell these properties. One of the conditions of Market Value is that the appraiser is to find the most probable price the subject house would get in a sale of typical buyer/seller motivations and without undue stimulus to sell. Often you have a bifurcated market where you have 2 values happening between the traditional seller without undue stimulus and a lender sale. The buyer knows the bank has to sell and they have the unfair upper hand with them. There is also a stigma attached to bank sales. They are “as-is”, special warranty deed, non-disclaimer, vacant for God only knows how long, sales. I like to think of them as a box of chocolates ***cue Forrest Gump*** Banks are a pain in the rear to deal with, the agents are often extremely difficult to talk to as well. Lien problems, title problems…all sorts of nightmares that people tell. I won’t even get into the physical conditions that are found.

    Market Value talks a great deal about motivations of the buyer/seller. Have you ever called the bank and asked what their motivations were. What made them price it like they did…how many foreclosed homes are on their books, etc??? I’m sure many of you are laughing the deer in the headlight look you would get. You could always ask the agent for a good laugh, too. In any event, REOs are unverifiable.

    All these factors that affect value must be considered. You can use C2 homes as comps as well as REOs (you’re not required to)…but should you use them, the market reaction needs to be checked and make appropriate adjustments so that it is a reflection of the most probable price of the subject’s new construction without undue stimulus. MV does not say to find the most probable price of a distressed USED house sale. There may be a “TON” of REOs in the market and driving the prices down. Of course, the prices of the non-REOs will reflect any influence they have in the market.

  5. Lori Herrington

    May 3, 2012 at 11:18 am

    We had an appraisal done to do a re-fi on our home. When the appraisal came back it was 20k less than what we expected. Upon a thorough review we found that the appraiser “rounded down” on each room in the square footage measurements, leaving off 80 sq feet as compared to 4 other previous appraisals that concurred the real and actual sq footage of our home.

    Additionally, they did not add value or even acknowledge the fact that we had an outdoor kitchen (complete with sink, fridge and built in grill) nor the fact that we had well water on the property. The comparables they used were all homes that were similar in age to ours…..however these homes had not been remodeled/upgraded as ours has. Several years ago we updated the home and included a gourmet kitchen complete with custom cabinets and granite countertops. All of the comps had the type of cabinets you would find in a low end apartment. and the flooring throughout our house is new, nice quality hand-scraped hardwood floors, where as the comps all had old out-dated carpets. (we also have several friends that are real estate agents, so I KNOW that there ARE comps of houses sold within 15 miles of my home….same age, remodeled similarily…..that SOLD for $10.00 a square foot higher than the value of our appraiser gave us in her report).

    In addition to ignoring the value of materials used inside our home (many more not listed). The appraiser gave us a price per square foot matching the lowest of the comps that she used…..with no explanation as to why the lowest number was used….not even an average. We do not have an abundance of foreclosed homes in our area….the housing crisis affected our area minimally as we are far removed from large metropolis areas. My husband is a banker and has worked with this appraiser on several other deals recently where they just failed to recognize a room in one home, gave innacurate square footage, valued a brand new home as old vs. new construction, on and on. Although the appraiser’s supervisor and owner of the company agreed that the mistakes were made on our appraisal as well as the others they flat our refused to make corrections. We brought them 3 prior appraisals to prove the square footage inaccuracy and provided them with copies of true comps.

    We had to pay $450.00 for this! I am outraged that they can handle business in such a way and have no one to answer to. My fear is that this type of problem will continue to go on unanswered and house prices in our area will start trending down based solely on bad appraisers. Any suggestions?

Leave a Reply

Your email address will not be published. Required fields are marked *

Opinion Editorials

The actual reasons people choose to work at startups

(EDITORIAL) Startups have a lot going for them, environment, communication, visible growth. But why else would you work for one?



Startups meeting led by Black woman.

Startups are perpetually viewed as the quintessential millennial paradise with all of the accompanying perks: Flexible hours, in-house table tennis, and long holidays. With this reputation so massively ingrained in the popular perception of startups, is it foolish to think that their employees actually care about the work that startup companies accomplish?

Well, yes and no.

The average startup has a few benefits that traditional business models can’t touch. These benefits often include things like open communication, a relaxed social hierarchy, and proximity to the startup’s mission. That last one is especially important: While larger businesses keep several degrees of separation between their employees and their end goals, startups put the stakes out in the open, allowing employees to find personal motivation to succeed.

When employees find themselves personally fulfilled by their work, that work reaps many of the benefits in the employee’s dedication, which in turn helps the startup propagate. Many aspiring startup employees know this and are eager to “find themselves” through their work.

Nevertheless, the allure of your average startup doesn’t always come from the opportunity to work on “something that matters.”

Tiffany Philippou touches on this concept by pointing out that “People come to work for you because they need money to live… [s]tartups actually offer pretty decent salaries these days.”

It’s true that many employees in their early to late twenties will likely take any available job, so assuming that your startup’s 25-and-under employee base is as committed to finding new uses for plastic as you are may be a bit naïve—indeed, this is a notion that holds true for any business, regardless of size or persuasion.

However, startup experience can color a young employee’s perception of their own self-worth. This allows them to pursue more personally tailored employment opportunities down the road—and that’s not a bad legacy to have.

Additionally, startups often offer—and even encourage—a level of personal connection and interactivity that employees simply won’t find in larger, more established workplaces. That isn’t symptomatic of startups being too laid-back or operating under loosely defined parameters. Instead, it’s a clue that work environments that facilitate personalities rather than rote productivity may stand to get more out of their employees.

Finally, your average startup has a limited number of spots, each of which has a clearly defined role and a possibility for massive growth. An employee of a startup doesn’t typically have to question their purpose in the company—it’s laid out for them; who are we to question their dedication to fulfilling it?

Continue Reading

Opinion Editorials

How Peloton has developed a cult-following

(OPINION EDITORIALS) How has Peloton gotten so popular? Turns out there are some clear takeaways from the bike company’s wildly successful model.



Man riding Peloton bike with instructor pointing encouragingly during workout.

Peloton is certainly not the first company to gain a cult-like following–in the past we’ve talked about other brands with similar levels of devotion, like Crossfit and Yeti. Now, full disclosure: I’m not an exercise buff, so while I’d vaguely heard of Peloton–a company that sells stationary bikes–I had no idea it was such a big deal.

I mean, it’s not really surprising that an at-home bike that offers the option for cycling classes has grown so much during the pandemic era (a sales growth of 172% to be exact). But Peloton has been highly popular within its fanbase for years now. So, what gives? A few factors, actually.

Vertical Integration

If your company really wants to guarantee the vision and quality you’re aiming for, one of the best ways to enact it is through vertical integration, where a company owns or controls more than one part of its supply chain. Take Netflix, for example, which not only distributes media, but creates original media. Vertical integration lets companies bypass areas that are otherwise left to chance with third-party suppliers.

Peloton uses vertical integration–everything from the bike to its Wi-Fi connected tablet to the classes taught are created by Peloton. Although this may have made the bike more expensive than other at-home exercise bikes, it has also allowed Peloton to create higher quality products. And it’s worked. Many people who start on a Peloton bike comment on how the machine itself is well-built.

Takeaway: Are there any parts of your business process that you can improve in-house, rather than outsourcing?

Going Live

But with people also shelling out $40 a month for access to the training regimen Peloton provides, there’s more going on than simply high-quality craftsmanship.

Hey, plenty of cults have charismatic leaders, and Peloton is no exception. Okay, joking about the cult leader part, but really, people love their trainers. Just listen to this blogger chat about some of her favorites; people are connecting with this very human element of training. So much so that many people face blowback when suggesting they might like training without the trainers!

The trainers are only part of this puzzle though–attending live classes is a large draw. Well, as live as something can be when streamed into your house. Still, with classmate usernames and stats available while you ride, and teachers able to respond in real time to your “class,” this can simulate an in-person class without the struggle of a commute.

Takeaway: People want to see the human side of a business! Are there any ways your company could go live and provide that connection?

Getting Competitive

Pandemic aside, you can get a decent bike and workout class at an actual gym. But the folks at Peloton have one other major trick up their sleeve: Competition. Whether you’re attending a live session or catching up on a pre-recorded ride, you’re constantly competing against each other and your own records.

These leaderboards provide a constant stream of goals while you’re working out. Small accomplishments like these can help boost your dopamine, which can be the burst of good feeling you need while your legs are burning mid-workout. With this in mind, it’s no wonder why Peloton fans might be into it.

Takeaway: Is there a way to cater to your audience’s competitive side?


At the end of the day, of course, Peloton also has the advantage of taking a unique idea (live-streamed cycle classes built into your at-home bike) and doing it first. Plus, they just happened to be poised to succeed during a quarantine. But that doesn’t mean you can’t learn from what Peloton is doing right to build your own community of fanatics. There are plenty of people out there just waiting to get excited about a brand like yours!

Continue Reading

Opinion Editorials

How a simple period in your text message might be misinterpreted: Tips to improve your virtual communication

(OPINION/EDITORIAL) Text, email, and IM messages may be received differently depending on your communication style and who you’re communicating with. Here’s some ways to be more mindful.



Black woman smiling in communication talking on phone and laptop in front of her.

Life is full of decisions, learning, hopefully some adventure, and “growth opportunities” through our careers and work. One that some of us may have never considered is how our text, email or IM communication comes across to the receiver – thus providing us a growth opportunity to take a look at our own personal communication styles.

It may have never occurred to us that others would take it a different way. After all, we know ourselves, we can hear our voices in our heads. We know when we are joking, being sarcastic, or simply making a statement. The way we communicate is built upon how we were raised, what our English teachers stressed, and even what we’ve been taught through our generational lens.

NPR put out an article recently, “Are Your Texts Passive-Aggressive? The Answer May Lie in Your Punctuation”. This article discussed what to consider in regards to your punctuation in text.

“But in text messaging — at least for younger adults — periods do more than just end a sentence: They also can set a tone.” Gretchen McCulloch, a linguist and author of the book Because Internet: Understanding the New Rules of Language, told NPR’s All Things Considered last year that when it comes to text messaging,”the period has lost its original purpose. Rather than needing a symbol to indicate the end of a sentence, you can simply hit send on your message.”

While it may seem silly that the receiver would think you are mad at them because you used a period, here are some things to consider in our virtual communication now that we are all much more digital:

  • There are no facial expressions in a text except for emojis (which, even then, could be left up to misinterpretation)
  • There’s no sound of voice or inflection to indicate tone
  • We are emailing, texting, and sending instant messages at an alarming rate now that we are not having as many in-person interactions with our colleagues

Gen Z (b. 1995 – 2015), who are the most recent generation to enter the workplace, grew up with much quicker forms of communication with their earlier access to tech. They’ve had a different speed of stimulation via YouTube videos, games, and apps. They may have never experienced the internet speed via a dial-up modem so they are used to instantaneous results.

They also have quickly adapted and evolved through their use of Facebook, Instagram, Snapchat, and now TikTok. The last two platforms are designed for pretty brief attention spans, which indicates our adaptation to fast communication.

Generational shaming is out and uncomfortable but necessary conversations around diversity, equity, and inclusion are in (which includes ageism). You can’t just chalk it up as “those kids” don’t understand you, or that they need to learn and “pay their dues”.

So if you are of an older generation and even a manager, here are some considerations that you can take regarding your virtual communications:

1. Consider having yourself and your team take a DiSC assessment.

“The DiSC® model provides a common language that people can use to better understand themselves and to adapt their behaviors with others — within a work team, a sales relationship, a leadership position, or other relationships.

DiSC profiles help you and your team:

  • Increase your self-knowledge: How you respond to conflict, what motivates you, what causes you stress, and how you solve problems
  • Improve working relationships by recognizing the communication needs of team members
  • Facilitate better teamwork and teach productive conflict
  • Develop stronger sales skills by identifying and responding to customer styles
  • Manage more effectively by understanding the dispositions and priorities of employees and team members

This quiz is designed to help you identify your main communication style. It helps you to be more conscious of how your style may come across to others. Does it builds relationships, or create silent conflicts? It doesn’t necessarily mean you have to change, but you can adapt your style to best fit your team.

2. Always ask your direct reports about their preferred method of communication (call, text, email, IM, meeting).

Retain this information and do your best to meet them where they are. It would also be helpful to share your preferred method with them and ask them to do their best to meet you where you are.

3. Consider putting composed emails in your drafts if you are fired up, frustrated, or down right angry with your team.

You may feel like you are being direct. But since tone will be lost virtually, your message may not come across the way you mean it, and it may be de-motivating to the receiver. Let it sit in drafts and come back to it a little bit later. Does your draft say all you need to say, or could it be edited to be a little less harsh? Would this be better as a meeting (whether video or phone) over a written communication? Now the receiver has a chance to see you and have a conversation rather than feeling put on blast.

And finally, be curious.

Check out Lindsey Pollak’s books or podcast on the best ways to work with a variety of generations in your organization. Lindsey is a Multigenerational Work Expert and she does a great job explaining her research to drive multigenerational workplace success. She gives ideas on what all employees, managers, and even corporations should consider as we experience so many generations and communication styles in the workplace at the same time.

You may laugh that your children or employees think you are mad at them when you use a period in a text. But there’s a lot more behind it to consider. It may take adaptation on all sides as communication styles and the “future of work” continue to evolve.

Continue Reading

Our Great Partners

American Genius
news neatly in your inbox

Subscribe to our mailing list for news sent straight to your email inbox.

Emerging Stories

Get The American Genius
neatly in your inbox

Subscribe to get business and tech updates, breaking stories, and more!