To answer this question we must first understand what type of value a home appraisal provides. Most appraisal assignments are completed to determine “Fair Market Value” of a property at a given time, which can be current, future or past.
Fair market value, or market value for short, is defined as the most probable price that a willing buyer will pay in an open market where neither the buyer nor seller are affected by external factors that may affect sales price. To be a “fair” value the buyer and seller should both be well informed and motivated and the property should be available for purchase for a reasonable time (determined by the market area).
It is the appraiser’s job to research market trends, comparable sales history and property specifics to determine an opinion of Market Value for the subject property. The accuracy of the appraiser’s opinion is directly affected by the amount of data the appraiser has to analyze when compiling his or her report. If there are few comparable properties that have recently sold in the market area, the appraiser may have difficulty determining adjustment amounts for specific features. In such a scenario, the appraiser will rely on cost basis or generic values for such adjustments; these may not be entirely accurate for the subject property’s market.
On the other hand, if the property is located in a market area with ample comparable sales then the appraisal should be very close to the exact sales price that you should expect to receive for the home. It should be noted that an appraisal is an opinion of value, and while it is heavily researched no two appraisers will arrive at the exact same opinion. It is common to see a variance of up to 3% between appraisal values in an active market.