If you’re a real estate professional, property owner, or anyone else involved in a real estate transaction, chances are you’ll need to get an appraisal done at some point. Appraisals are a crucial part of determining property values for sales, financing, investments, and more. But working with appraisers isn’t always straightforward. There are so many ways the appraisal engagement process can go wrong if you’re not careful!

Believe me, I’ve seen it happen way too often. Miscommunications, unrealistic expectations, sloppy reviewing, and outright mistakes can totally derail an appraisal assignment. And when that happens, you end up with an appraisal report that’s useless at best or misleading at worst. Not what you want when important decisions and money are on the line!

The good news is that many appraisal engagement mistakes can be avoided if you know what to watch out for. I’m going to walk you through the eleven most common mistakes I see people make when working with appraisers. These pitfalls pop up on both sides – from those ordering the appraisal and those conducting it. If you can dodge these issues, your appraisal experience will be smoother sailing. You’ll get a detailed, reliable valuation report to support real estate transactions and decisions.

Now, I don’t want to scare you! Appraisals are super valuable IF the engagement goes well. And it usually does, if you stick to best practices and keep the lines of communication wide open. I want you walking away with the confidence to engage appraisers effectively and get maximum value from the process. So let’s jump in and see how to steer clear of the most common appraisal engagement mistakes.

Not Having a Clear Scope of Work

The very first step when ordering an appraisal is to establish the intended scope of work. This includes details like the type of value being determined (market value, insured value, etc.), the specific property characteristics being appraised, the intended use of the appraisal, and any other assignment conditions. Appraisers need this information to determine the most appropriate scope of work for the assignment under USPAP (Uniform Standards of Professional Appraisal Practice). 

A clearly defined scope of work helps ensure the appraisal focuses on the elements most relevant for the intended use. It also assists the appraiser in determining the specific methodologies, data sources, analyses, and report format required. Don’t assume the appraiser will just know what to cover. Discuss your needs and rely on the appraiser’s expertise to determine the appropriate scope of work.

If the scope is unclear or ill-defined, you may end up with an appraisal report that doesn’t address your intended use or misses important elements you wanted covered. Always take time at the start to align with the appraiser on the scope of work. It will make the process smoother and enhance the quality of the final report.

Rushing the Appraisal Process

Many appraisal users want the finished report as quickly as possible. However, appraisers need sufficient time to follow all the proper methodologies, conduct thorough research, complete detailed analyses, and prepare a credible report. Rushing an appraiser often leads to compromises in the quality of work.  

It takes time to properly inspect the property, evaluate the relevant market data, identify suitable comparable properties, make appropriate adjustments, and reconcile the value indications from multiple approaches. Complex commercial appraisals may require weeks or even months to complete to professional standards. Make sure to align on realistic timing upfront so the appraiser can conduct the work appropriately. 

Trying to condense the process could mean important data gets overlooked or key steps get skipped entirely. This can introduce errors and negatively impact the reliability of the final opinion of value. Build enough time into the schedule and avoid pressuring the appraiser to cut corners in order to turn the report around faster. It’s better to have a thoroughly researched, high-quality appraisal, even if it takes more time.

Not Checking the Appraiser’s Credentials

Ordering an appraisal from someone who lacks proper qualifications is an easily avoided but serious mistake. Real estate appraisal requires specific training, knowledge, and experience. Appraisers must meet state licensing or certification requirements in order to legally practice. Failing to verify an appraiser’s credentials could mean the work doesn’t comply with standards or lacks credibility.

Don’t assume all real estate agents, brokers, or consultants are qualified appraisers. Check that the appraiser holds the appropriate state-issued license or certification. This involves meeting educational requirements and a minimum number of hours of specialized training. Ensure any appraisers you engage have actually met the mandatory qualifications to perform the type of appraisal you need. 

You can look up the status of appraiser credentials through state licensing boards. Double check that the appraiser has specific valuation experience related to your property type as well. An office building appraisal requires different expertise than raw land, for example. Making sure you use a qualified appraiser enhances the credibility of the assignment.

Not Providing Enough Information to the Appraiser  

Failing to provide the appraiser with enough background information on the subject property can also lead to problems. Appraisers can only make informed valuations if they understand relevant details on the property’s characteristics, ownership, history, and intended use. Leaving an appraiser short on critical information makes it much harder to determine an accurate opinion of value.

Provide the appraiser with all available property details, including legal descriptions, zoning information, floor plans, rent rolls, operating histories, prior sales prices, and anything else relevant. The more information the appraiser has to work with, the more sound their valuation analysis will be. Supplying insufficient information essentially forces the appraiser to make assumptions, which increases the risk of errors.

Helping the appraiser understand key property details as well as the intended use of the appraisal allows for a more customized, meaningful valuation. Don’t hold back information for any reason. Sharing everything you know about the property enables a truly professional appraisal.

Not Reviewing the Appraisal Carefully

It’s not enough to simply receive the finished appraisal report and accept the conclusions at face value. The end-user of an appraisal needs to carefully review the report to ensure it is credible, reasonable, and useful. Review the report with a critical eye before accepting the valuation or making any decisions based upon it.

Look for red flags like unsupported assumptions, inadequate explanations of methodology, inappropriate comparable properties, mathematical errors, or an overall lack of convincing analysis. Watch for anything that seems unclear or unjustified. An appraisal report should provide thorough support and rationale for the appraiser’s conclusions.

If you identify flaws in the appraiser’s reasoning, aftermath, or conclusions, don’t hesitate to go back to the appraiser for clarification or corrections. It’s perfectly acceptable to ask an appraiser to explain their approach, defend their choices, correct errors, or supplement areas that lack sufficient detail.

Putting in the time for careful review helps verify you receive a high-quality appraisal report you can actually rely upon. Never treat an appraisal valuation as beyond question. Reviewing thoroughly protects your interests and ensures the work meets professional standards.

Not Asking Questions When Things are Unclear

If anything in the appraisal report is confusing, unclear, unsupported, or questionable in any way, you must go back to the appraiser for clarification. It’s your right to have any aspect of the report fully explained and justified. Don’t be intimidated into accepting the appraisal if you have lingering doubts or questions. 

Ask the appraiser to walk you through their reasoning on property selection, adjustments, reconciliations, or anything else that needs clarification. A credible appraiser should be able to explain and defend every element of their work. If they are unable or unwilling to address your concerns, you may need to request revisions or even engage a new appraiser.

Bottom line, make sure you understand how and why the appraiser arrived at their conclusions before accepting the final opinion of value. It may take going back and forth with questions to grasp the full picture. Putting in the time upfront prevents problems down the road. Never accept an appraisal valuation you are not entirely comfortable with.

Having Unrealistic Expectations for the Appraisal Results

Some appraisal users have unrealistic expectations about the outcome of the valuation process. They may assume their own estimate of property value will be validated or expect the appraisal figure to meet certain lending requirements. If the final appraisal doesn’t align with their preconceived target value, they view it as a failure.

In truth, a competent appraisal performed under USPAP guidelines will reflect the appraiser’s impartial, data-driven opinion of value. There are no guarantees the figures will match up with any stakeholders’ wishes, objectives, or needs. That’s not the appraiser’s role.

Understand that the appraisal valuation carries no guarantees or obligations related to your desired outcome. Base your expectations solely on receiving an independent, professional opinion of value in line with current market realities. Don’t assume the appraiser is there to endorse your own valuation opinion. Avoid pressuring them to support specific numbers as well.

Maintain realistic expectations focused on credible analysis and conclusions – not hitting predetermined targets. This helps ensure useful, meaningful results from the appraisal engagement.

Trying to Influence the Appraiser’s Opinion of Value 

Some parties to an appraisal try influencing the appraiser’s independent opinion of value in inappropriate ways. This may come through questioning their competence, pushing them to revisit their conclusions, or even outright coercion. Any attempt to force a specific valuation figure is unethical and goes against the foundations of professional appraisal practice.

Appraisers have an obligation under USPAP to reach objective conclusions without regard for the needs of any stakeholders in a property or transaction. Their role is providing an impartial opinion of value, not generating figures to assist parties like lenders or buyers. Any attempt to pressure or manipulate the appraiser undermines the credibility of the assignment.

Maintain arm’s length from the appraiser throughout the process. Never threaten their professional standing based on dissatisfaction with their conclusions. Don’t try incentivizing the appraiser to reach higher or lower numbers either. Even subtle forms of influence should be avoided entirely. Allow appraisers to perform their work free of any real or perceived interference.

Attempting to push the appraiser toward specific valuations betrays the very purpose of an independent appraisal. Keep the process ethical by avoiding improper influence of any kind.

Not Following Up After Receiving the Report

Your responsibility doesn’t end once you receive the appraiser’s report. Failing to follow up on outstanding questions, clarifications, or errors can undermine the usefulness of an appraisal. If you identified issues during your review of the report, you must go back to the appraiser for satisfactory resolution.

Follow through on addressing any vague areas, dubious assumptions, math mistakes, contradictory analysis, inappropriate comps, or other problems you noted. Don’t let subpar elements go unchallenged. Engage in respectful, constructive dialogue with the appraiser until you fully comprehend their reasoning and resolve any deficiencies.

You may need to request the appraiser revisit unsupported conclusions, provide additional data or explanations, or even correct major errors. If their responses are still lacking, escalate as needed until you obtain an appraisal you can confidently rely on.

Exercising your right to transparent explanations and resolution of issues also helps provide quality assurance. It motivates the appraiser to adhere to high standards in both the appraisal itself and their responsiveness to the end user. Don’t skip this critical follow up step.

Failing to Communicate with Stakeholders

Appraisals often involve multiple stakeholders – lenders, buyers, sellers, investors, etc. Failing to clearly communicate with all parties throughout the appraisal process can cause significant problems. Ongoing communication provides transparency, aligns expectations, prevents misunderstandings, and enables appropriate reliance on the finished work.

Provide updates to stakeholders as key milestones are completed: inspection, selection of comparable sales, preliminary value range, draft report delivery, and so on. Share relevant findings that emerge so stakeholders have good visibility. Transparency and alignment reduces surprises and frustration at the end.

Get input from stakeholders on issues like proposed comparable sales and scope of work as well. Make sure to notify them of any delays and allow them to share constructive feedback on draft appraisal reports as well. However, take care to not provide so much interim information that stakeholders try to improperly influence the appraisal conclusions.

Keeping open, professional communication channels with all parties ensures proper management of the appraisal process from beginning to end. Taking a closed-door approach often breeds misalignment and distrust. Make communication a priority.

Conclusion

Mistakes during the appraisal engagement process can undermine the entire purpose of obtaining the valuation. Insufficient scoping, rushed timelines, unqualified appraisers, information gaps, lack of review, and failure to resolve issues are only some of the problems that can arise. However, armed with awareness of these potential pitfalls, real estate professionals can take proactive steps to avoid them.

Follow best practices like verifying credentials, setting clear scopes of work, providing comprehensive background information, critically reviewing reports, resolving unclear elements, and maintaining open communication with stakeholders. Avoiding undue pressure and maintaining realistic expectations is critical as well. With diligence and care, the appraisal process can produce fair, well-supported valuations.

Appraisals require collaboration, transparency, integrity, and commitment to quality from all parties. Understanding these common mistakes creates the right foundation. Real estate professionals who apply that understanding can obtain appraisals that provide maximum value and support for critical business decisions and transactions.