Divergent Values On The Same Asset

by PJ Grube | January 12th, 2011

Can the same property have different appraised values at the same time?

A Buyer asked me about the ‘loan approval’ appraisal of the home they are purchasing. The appraisal was done by the same bank that is selling the distressed property. Naturally, they thought it would be ironic and exasperating if the ‘distressed property’ appraisal, done by the same bank, to value the distress property, resulted in a significantly different valuation than the ‘loan approval’ valuation of the property.
First, these are two different departments of the same institution and may be located it different parts of the Country, let alone, the appraisers are probably different. However, The same property can have several significant divergent values depending on the reasons for the appraisal, even if it were to be valued by the same appraiser.
As an example, a ‘court sale’ value would be different than a ‘construction loan’ value. One is seeking immediate sale for cash, the other a value anticipated upon completion of a new construction. Value is subjective. One may value their garden highly, while a bank sees little value in vegetables. Appraisers are people with an opinion. With the same standards, practice and objectives appraisals can very dramatically.
Typically, an appraisal of real estate for a new ‘purchase loan’ is seeking only to validate a purchase price, where as a ‘distress sale’ valuation will be seeking closure and cash. The valuation of an estate for inheritance tax purposes will be different than that of a charitable contribution. The first question asked by an appraiser is, ‘What is the appraisal for?’

PJ Grube Real Estate (831) 345-2303

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