Can You Really Trust That Appraisal? Why Inflated Values Could Cost You Clients
Appraisals are a key part of nearly every residential deal—borrowers pay for them, brokers rely on them, and lenders use them to justify approvals. But here’s the uncomfortable truth: they’re often inflated, and if you’re not careful, they can backfire in a big way.
We’ve seen it far too often. A file gets pushed through based on a generous appraisal, the client takes a short-term private loan, and everyone assumes the exit will be clean—usually via a B lender. But 12 months later, the exit falls apart. The market’s shifted, the client’s credit hasn’t improved, and now they’re stuck. And when that happens, it’s not just the borrower who’s frustrated—it’s your relationship that’s on the line.
Why Appraisals Often Miss the Mark
The residential real estate system thrives on momentum. Deals need to close, lenders need to lend, and buyers want to feel confident in their purchase. That optimism often shows up in appraisal values. It’s not necessarily intentional, but when brokers or borrowers order the appraisal, there’s a subtle (or not so subtle) expectation of a certain number.
According to CoreLogic, discrepancies between appraisals and actual market values are common, and those gaps can lead to serious exposure for lenders and brokers alike.
Red Flags to Watch in Appraisals
When you’re reviewing an appraisal—especially on a deal you’re submitting—pay close attention to the following areas:
1. Who Ordered It?
If the borrower or broker initiated the appraisal, it’s fair to assume there’s upward bias. That doesn’t mean it’s useless, but you need to approach it critically. Who has the relationship with the appraiser? That dynamic matters more than people admit.
2. Assumptions Everywhere
Most appraisals are based on ideal conditions—completed renovations, stable market, clean exits. But if those assumptions don’t play out, what does that valuation really mean? If you’re using it to justify your LTV or exit, it better hold up in real-world conditions, not just on paper.
3. Location Stretching
We see this constantly—comparables pulled from a few blocks away, sometimes across invisible neighborhood lines. Even subtle geographic changes can shift value dramatically. We’d rather see a nearby comp that’s slightly different than a perfect match located too far away.
4. Dubious Adjustments
This is where appraisals get creative. Adjustments for pools, garages, or basements can be wildly subjective. A $50,000 boost for a pool might look good on paper, but how many buyers actually want a pool? Does that really reflect market value—or just cost?
Appraisals as Exit Strategy: A Risky Assumption
Many lenders rely on an appraisal to support the assumption that a borrower will exit cleanly—typically into a B lender’s hands. But that’s a dangerous bet. If credit doesn’t improve or lending criteria shift, the exit disappears. Now the borrower is stuck in a loan they can’t exit, and you’re stuck explaining why the deal fell apart.
Worse, the borrower might be forced to renew with a private lender they never planned to stay with—possibly at higher rates or under tighter terms. When that happens, you don’t just lose a deal—you risk losing the relationship altogether.
Appraisals Cost More Than Money
An appraisal isn’t cheap—$400 to $800, on average. But the real cost is the false sense of security. A bloated value can lead you to push a deal through that shouldn’t have been approved in the first place. You might stretch the LTV a bit, adjust the numbers so they work, then hope the exit plays out… Until it doesn’t.
And when that call comes in—“I can’t refi, what now?”—your client’s frustration becomes your headache.
What’s the Alternative?
The better play is to work with lenders who truly understand the exit, work off realistic valuations, and leave enough room for a proper exit to a B or A Lender —lenders who look at the true market value based on actual deal dynamics, not a 30-page document filled with assumptions and hypotheticals.
At Stonefield Capital, we don’t require appraisals on residential deals. That saves time, avoids unnecessary costs, and keeps expectations grounded in reality—so you and your client both know where the deal stands from day one.
Final Thought
Your best deals won’t define your business—but your worst ones will. Ten clean exits can be wiped out by one bad loan with no way out. Be critical of every appraisal, and don’t let optimism blind you to risk. Protect your clients. Protect your reputation. And always ask: if this value is wrong, who pays the price?