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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.


Imagine two people go to the same restaurant on the same day. They both order the same steak dinner. While the meals are served on different plates, the food on the plate should be very similar. If one plate had a much larger steak than the other, the restaurant would have a problem. What was the motive behind one person getting one thing and the other person getting something different than what they ordered? The same is true with appraisals.

One thing that needs to be understood is that there is an intellectual process that appraisers go through to develop an opinion of value. What the printed appraisal report reflects are the results of that process. Not the results of just filling out the form. Filling out a form is not performing an appraisal. The process is the same whether the appraisal is for a bank or for a private party. So typically, the estimated value will be the same no matter who the appraisal is completed for if it is completed on the same day with the same definition of market value.

One big difference between a bank appraisal vs. a private appraisal is the form used to report the appraiser’s findings. For most lending work, the Fannie Mae/Freddie Mac forms are used. It is important to understand that a Fannie Mae/Freddie Mac form cannot be used for non-lending appraisals. Notice the INTENDED USE statement that you will find in their forms. The verbiage in these reports makes that clear. There are also some hybrid style reports that are now being used in some scenarios. For private work I usually use what are called General Purpose appraisal reports (GPAR). There are numerous kinds of reports that can be used. Technically, a form doesn’t need to be used. If an appraiser writes a value estimate on a napkin, or even verbally states a value, there had better be a work file to support that value conclusion and how it was derived. The kind of report used should not affect the results of the appraiser’s work. Some reports provide much more information as to how the value was developed. For instance, a narrative report is much more extensive in its detailing the process of how the value was developed. But the value should not change whether it was reported on a Post-it note that was hand written by the appraiser or typed on a form. If the appraiser is reporting a value, they must have gone through the intellectual process needed to credibly arrive at that value.


The client’s assignment conditions, and type of value requested, may have an impact on the value estimate. For instance, a client may want the value to reflect the typical exposure time for the market. However, a client may order an appraisal with a value that reflects an exposure time of 30 days in a market in which the typical exposure time is 90-120. In that case, the values may be different because a property might need to be discounted to a greater degree to encourage a quicker sale.

There are also many different types of value that are used in the real estate profession. They may all have a different value. Here are several of them.

Market Value

Liquidation Value

In-Use Value

In-Exchange Value

Fair Value

Going Concern Value

Public Interest Value

Assessed Value

So differences in the definition of market value can have an impact on the value estimate. That is why it is very important for the appraiser to provide the specific definition of market value that was used in completing their report. Read my blog "It Has To Be Possible & Most Probable!" for more information on what market value really means.

Additionally, the scope of work may impact the value derived. For instance, say that a private party orders an appraisal of their home with the same market value definition as a bank would use. However, they don’t want us to observe the interior of the property. So, the appraiser is not certain of the interior condition of the property. The appraiser also must rely on public records for components of value like bedroom and bathroom counts and the size of the gross living area. The appraiser estimates the value of the property based on this scope of work. Later, in the same day, the bank sends the same appraiser to the same property, but they order an appraisal with a full interior observation and measuring the home. Upon inspecting the property, the appraiser finds that the interior has been totally remodeled and a large addition was made. The gross living area is larger than what public records reflect, and the condition is superior. Clearly, the values will be different.

Another thing that can make for a difference in value is the effective date. This is the specific date that the value is being developed for. One day later, the market may change which may affect the value. It could be that the comparable sales that sell tomorrow will selling for higher or lower than those that sold today or in the past year. Therefore, it is also very important when ordering an appraisal to state the effective date. Appraisers can even appraise a property using a date from the past. We call those retrospective appraisals. So clearly there are things that can cause a change in value even when the same home is being appraised.


A bank appraisal may cost a different price than a private appraisal. The price differences are typically because of different scopes of work. The more information that the report includes the higher the fee will be. While the intellectual process may be the same, the amount of time it takes to explain the details of that process can differ greatly. A narrative appraisal takes considerably longer to complete than an appraisal that is reported on a form. Additionally, there are different types of forms. Some take much longer to complete than others. It should also be noted that if a bank is ordering the appraisal, they may use an appraisal management company (AMC). Many times, the appraisal fee reflected by the lender will include the AMC's fees. In this case, the appraiser is not receiving that whole fee. This is one reason why some appraisal fees appear to be higher for banks.

Hopefully this information is helpful in explaining the differences in bank appraisals vs. private appraisals. Remember, the market value is what it is. It doesn't mysteriously change based solely on who the appraiser's client is. If you still have questions, pick up the phone and call an appraiser in your area. They will be happy to explain any questions you may have.


Here are some other appraisal blogs and podcasts that I recently enjoyed.

Rising Waters: Realtor Signs, Cockroach Mil and Plastic Straws - Jonathan Miller's Housing Notes

Are Investor Flips Good Appraisal Comps? - Birmingham Appraisal Blog

It's Not All About Square Footage in Real Estate - Sacramento Appraisal Blog

Immobile Homes - 99% Invisible

Can the Appraisal Profession Be Saved - The Appraiser Coach

Observe, Analyze and Report - in that order - Ann Arbor Appraisal

Why Do Clients Complain? - George Dell's Analogue Blog,

The Great Transformation!!! - Voice of Appraisal with Phil Crawford

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