What does the term 'excessive value' refer to in appraisals?

When discussing appraisals, 'excessive value' refers to a situation where the appraised value of a property is higher than what is typically observed in the surrounding neighborhood, potentially significantly so. This scenario raises concerns about the validity of the appraisal itself, as properties in a similar area usually offer comparable values influenced by factors such as size, condition, and location.

An appraiser is expected to carry out an analysis using comparable sales, and an excessively high valuation may indicate either a miscalculation or a bias in the appraisal process. Such a valuation cannot be justified by broader market conditions or recent sales data. Therefore, it is crucial for borrowers and lenders alike to be aware of this concept, as it can impact loan terms, approval processes, and overall market perceptions of the property.

Understanding the notion of 'excessive value' helps to ensure that appraisals remain realistic and grounded in actual market conditions, maintaining the integrity of the lending process.