Evaluations vs. Traditional Appraisals – What’s the Difference?

Understanding the difference between evaluations and traditional appraisals is key for both financial institutions and borrowers alike.  Expectations needs to be managed and we must do a better job of educating the public about the products they receive. 

To simplify it, appraisals are intended for accuracy.  Evaluations are intended for adequacy.  Since we live in the south, another way of putting it is the difference between a rifle and a shotgun. Other differences include their fees and turnaround times.  The reason an evaluation can be provided at such a low cost and so quickly is because it’s not an appraisal!

My experience has been that many don’t know or recognize the differences, as both products are generally referred to as an “appraisal”.  After all, they both result in a market value estimate, right?  Evaluations are subject to things like scope creep or scrutiny because the end user still expects precision accuracy.  I believe evaluations are intended for loans that are adequately collateralized, pose minimal risk, and are secured by real estate that is not overly complex.  I also believe that there are many instances where the bank should still be ordering appraisals instead of evaluations.  In biblical terms…something may be permissible, but not beneficial!  Borrowers can be better served when lenders take the time to understand the collateral, assess the loan performance, and relay good information so that the appropriate product can be selected.

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