5 Red Flags to Watch for in a Property Appraisal Report
If you want to invest in real estate, you’ll need a property appraisal to get a loan. Your appraisal report helps your lender determine how much they are willing to lend based on the property’s value. That said, your property appraisal report should be as accurate as possible, so you’ll need to know about some red flags to watch for. Today, we’ll review the red flags to watch for in a property appraisal report and what to do if you find inaccuracies.
Contents of This Article:
- What Is a Property Appraisal and Why Is It Important?
- What Does an Appraiser Look For?
- 5 Red Flags to Watch for During a Property Appraisal
- What to Do If There Are Major Red Flags
- Fund Your Next Investment With MHML
What Is a Property Appraisal and Why Is It Important?
Investors and hard money lenders in Baltimore, Maryland, know how important property appraisals are. A property appraisal is a professional evaluation of a property’s market value.
Generally, these are done by a licensed appraiser, who looks at factors like the home’s condition, size, location, and comparable recent sales (comps) in the area. That said, appraisals are most common during real estate purchases or when securing financing, like a mortgage or hard money loan, for a property.
Getting a property appraisal report is vital because it helps ensure that buyers, sellers, and lenders are working with a fair and accurate assessment of a property’s value. It protects a lender’s investment by confirming that the property is worth the loan amount they’re offering. On the other hand, for buyers and sellers, it helps support fair negotiations and avoids overpaying for a property or underselling a property.
What Does an Appraiser Look For?
During a property appraisal, an appraiser evaluates several key factors of a property to determine the fair market value. Here are some of the main things they typically look at.
- Property size and layout
- Physical condition of the property
- Improvements and updates to the property
- Comparable sales (comps)
- Location factors
- Curb appeal and overall presentation
5 Red Flags to Watch for in a Property Appraisal Report
If you’re getting a property appraised so you can secure financing, it’s important to review the appraisal report carefully. Mistakes happen, and the last thing you want is to let any errors or inconsistencies impact your ability to fund the property. Here are some of the potential red flags you’ll want to look for in your property appraisal report.
- Inconsistent or Incorrect Property Details
- Outdated or Irrelevant Comps
- Unexplained Adjustments
- Low or High Valuations Without Justification
- Appraiser Lacks Local Experience
Inconsistent or Incorrect Property Details
A property appraisal report must have accurate data to be useful. If the report has errors like incorrect square footage, the wrong number of bedrooms or bathrooms, or doesn’t list the correct lot size, it can drastically impact the final value. Even small errors can throw off the entire analysis and skew the results. As such, it’s crucial to verify these basic details before accepting the report results.
Outdated or Irrelevant Comps
Looking at comparable properties, or “comps“, is one of the essential parts of any appraisal. If the appraiser uses properties that sold over six months ago or are located in very different parts of town, they may not be an accurate representation. Any comps should match the subject property in terms of location, size, condition, and features. That said, using comps that are drastically different can result in an inaccurate valuation.
Unexplained Adjustments
Appraisers may make value adjustments between the subject property and the comps. However, if they do, the adjustments must be clearly justified. If large dollar amounts are added or subtracted without a good explanation, it’s a major red flag. Your property appraisal report should clearly show a consistent method for calculating the differences. If not, the entire appraisal may not be accurate.
Low or High Valuations Without Justifications
If the appraised value is significantly higher or lower than you expected, with no reasonable explanation, that could be a concern. Fluctuations can be normal, but there should be a clear explanation, whether it be market trends, the property’s condition, or comps. An out-of-line valuation can delay or derail a sale, refinance, or loan approval. So, if something feels off to you, don’t be afraid to question it.
Appraiser Lacks Local Experience
Local experience matters a ton when it comes to home appraisals. If you’re working with a new appraiser or one who’s unfamiliar with your area, they may not fully understand neighborhood dynamics, school zones, or location-based demand. Unfortunately, this can lead to poor comp selection and inaccurate property value assessments. It doesn’t hurt to ask your appraiser if they have prior experience in your market.
What to Do If There Are Major Red Flags
If you’re spotting some red flags during a property appraisal, it’s important to act fast. Here are a few things you can do to mitigate any issues with financing or selling the property.
- Carefully Review the Report- If you think your appraisal has red flags, you’ll want to double-check all the details. Look at the property features, comps, and any adjustments to determine whether or not there are mistakes on the report.
- Gather Relevant Property Data- Do your own research. Gather recent sales data, take photos, or find documentation that supports a different valuation of the property.
- Contact Your Lender or Appraiser- If you think the appraisal will impact your loan terms, bring up your concerns with your lender or appraiser. You can always request a review or clarification of the report.
- Request a Reconsideration of Value (ROV)- If you’re working with a lender, consider asking for a second opinion. You can request a reconsideration of value (ROV) if you suspect something is off.
- Consider Another Opinion- In some cases, you may want to schedule an independent appraisal. While you’ll generally pay for this out of pocket, it can help provide a more accurate property valuation.
Fund Your Next Investment With MHML
When you buy real estate with a lender, they will need a lot of information about the property, one of the most important being a property appraisal report. This helps them determine how much they’re willing to lend based on the property’s value. However, to ensure the most accurate information, you’ll want to know which red flags to look for in your property appraisal report. That way, you and your lender can have the most accurate report, and you can secure the best loan terms.
If you’re looking to invest near Baltimore, Maryland, consider working with Maryland Hard Money Lenders. We can help you secure a property quickly and efficiently with fair loan terms. Learn more about our lending process or fill out our initial loan application today!
