Bank Appraisals vs. Private Appraisals...What Makes the Most Cents?

What’s the difference between a “Bank” appraisal for lending vs. a private appraisal? If an appraiser appraises a home for a lender and on the same day performs a second appraisal of the same property for private party, will the values be different?

I recently had a client tell me that their real estate agent said that bank appraisals are usually inflated. Oddly enough, I have heard others say just the opposite. Do appraisers manipulate values based upon who their client is? Do they wear a more 'conservative' hat for one type of client and a less 'conservative' hat for another? (In my experience, the term 'conservative' is code for honest). They shouldn't. However, there are a small number of appraisers that have lowered their standards and have tried to manipulate their value estimates to meet their client's wishes. For example, I was recently preparing an appraisal for a divorce. The opposing side also had an appraisal completed. As part of my preparation, I analyzed their report. It was painfully clear that the appraiser made numerous large unsupported negative adjustments to derive a lower value estimate than what is realistic in that market. (At least in my opinion) I had very good market data that refuted their reporting. If I was a betting man, I would bet that the same appraiser would never have completed their report the same way if the report was completed for a bank.

I have also heard of cases in which appraisers are hired to perform a pre-listing appraisal in order to establish the market value of a home. This is to help the client determine a potential listing price. The problem is that a few bad actors appear to be inflating values for this kind of appraisal. They will use sales that are superior or are in superior locations to inflate value. Or, they may use unsupported adjustments to manipulate the value. Of course they look like a hero to their client. In this kind of market where many market participants are willing to pay more than market value, this situation becomes problematic. This is because when the appraisal is completed for the bank, it is sometimes revealed that the market value is really not there. It's usually the honest appraiser that is made to look like they are not competent.

Sometimes, in completing private appraisals, a relatively small number of appraisers are willing to manufacture values, both higher and lower than what is supportable, because they may feel like there is less risk of getting caught. They may feel like there are less 'eyes' looking at their report. That may embolden them to do things that they wouldn't normally do if the appraisal was for a lending institution in which their reports are reviewed by numerous individuals and ran through systems to catch errors and possible value issues. Therefore, that same appraiser that manipulated an unsupportable value for a private client, would likely be more 'conservative', that is honest, in completing the appraisal for the bank. I would like to emphasize that this is not reflective of most appraisers today. Sadly, it only takes a few bad ones to cast doubts on the competency of all appraisers.


There is a lot of confusion about what kind of value the appraisal is typically reflecting. For residential appraisals, it’s typically market value, unless some other definition of value is stated in the appraisal report. I have seen numerous articles on line which suggest that an appraisal is not reflecting market value. Those types of articles infer that appraised value is different than market value. These kinds of articles are not written by appraisers and, with all due respect to the writers, display a lack of understanding of appraisals and what market value really is. They typically confuse market value with market price. A lender wants to know the market value when they order an appraisal. If a person orders an appraisal for a different purpose, most of the time the same kind of value definition is anticipated. Especially is this the case with residential appraisals. If a bank orders an appraisal of a property and on the same day a private party orders an appraisal of the same property, with the same value definition, the values should be the same.