The Bank Never Even Visited the House: My Introduction to Desktop Appraisals
I always assumed an appraisal meant someone came to the property.
They measured rooms.
Took photos.
Looked at upgrades.
Walked the lot.
Compared the home to similar sales.
Apparently, not always.
I was surprised to learn that a lender could approve financing using what is known as a desktop appraisal without anyone ever visiting the property.
At first, I thought there had to be a mistake.
How can someone determine the value of a home without stepping foot inside it?
The more I learned, the more I realized most homeowners have no idea there are different types of appraisals.
Not All Appraisals Are The Same
When most people hear the word appraisal, they picture a professional visiting the property.
Sometimes that happens.
Sometimes it doesn't.
A traditional appraisal typically involves an inspection of the property along with an analysis of comparable sales.
A desktop appraisal relies heavily on available data, public records, mapping systems, property information and recent sales without an on-site inspection.
Lenders often use desktop appraisals when the property appears straightforward and sufficient information is available.
That doesn't mean the appraisal is automatically wrong.
It simply means the process is different than many homeowners expect.
The Question Most Homeowners Ask
My first reaction was simple:
How can someone accurately value a property they have never seen?
It's a fair question.
A home is more than an address and a square footage number.
Condition matters.
Renovations matter.
Maintenance matters.
Layout matters.
Unique features matter.
A home that has been meticulously maintained for years may be very different from another property with the same floor plan and similar size.
That is why many homeowners are surprised when they learn a desktop appraisal may be used during a financing process.
Market Value And Replacement Cost Are Not The Same Thing
One of the biggest sources of confusion is that people often use the word "value" as if there is only one number.
There isn't.
Market value is generally what a buyer may be willing to pay for a property in the current market.
Replacement cost is something entirely different.
Replacement cost focuses on what it would cost to rebuild the structure if it were destroyed.
The two numbers can be dramatically different.
A property might sell for less than its replacement cost.
It might also sell for significantly more.
Land value, location, demand, construction costs and local market conditions all influence the outcome.
That is why homeowners should be careful when comparing one valuation to another.
They may not be measuring the same thing.
Municipal Assessments Create Even More Confusion
Many homeowners also assume their municipal assessment represents market value.
It doesn't.
Municipal assessments are primarily used for taxation purposes.
They are not necessarily updated to reflect current market conditions.
A municipal assessment, a desktop appraisal, a full appraisal and a replacement cost appraisal can all produce different numbers for the same property.
That doesn't automatically mean one of them is wrong.
It means they were created for different purposes.
PMB Takeaway
Many homeowners assume everyone is talking about the same type of valuation when they are not.
A lender may be focused on financing risk.
An insurer may be focused on rebuilding costs.
A municipality may be focused on taxation.
A buyer may be focused on market value.
Each may arrive at a different number.
Understanding which type of valuation you are looking at is often more important than the number itself.
Before relying on any appraisal, assessment or valuation, make sure you understand what it was designed to measure.
You may discover that two very different numbers can both be correct depending on the question being asked.
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The information provided in this article is for general informational and educational purposes only and should not be considered legal, financial, tax, appraisal, inspection, or real estate advice. Readers should conduct their own research and seek professional advice where appropriate.