Key takeaways
Summary: Appraisals are an opinion backed by market evidence, and the contract price, comp selection, and adjustment logic are what usually drive the final number. When you understand how appraisers weight data (and what they ignore), you can set smarter expectations and reduce the odds of an unpleasant surprise mid-escrow.
You think you know what your home is worth. Your neighbor’s place just sold for $1.8 million, yours has the better kitchen, so obviously yours is worth more. Right?
Maybe. Maybe not. Because the person who tells your bank what they think the property is worth – that is, the appraiser – might not see it the way you do. And understanding what goes on inside an appraiser’s head could be the difference between a smooth closing and, on rare occasion, a deal-killing surprise.
I recently sat down via vide ochat with Angela Ervin, a real estate professional with Compass in San Diego who spent nearly 25 years as a certified appraiser before transitioning full-time into real estate sales. Angela’s dual perspective – someone who has literally written thousands of appraisal reports and now represents buyers and sellers – makes her one of the most uniquely qualified voices in the California real estate industry when it comes to understanding home values.
What she shared was eye-opening, even for someone like me who has closed over 450 transactions in Silicon Valley.
The Dirty Secret About Purchase Price and Appraised Value
Here’s something most homeowners don’t realize: in a purchase transaction, the appraiser receives a copy of the purchase contract before they ever set foot in your home. They know exactly what the buyer has agreed to pay.
I recently had clients who were terrified their appraisal would come in low. I told them not to worry — and predicted it would come in at the exact purchase price, which happened to be an odd number that would seemingly be an unlikely choice for appraised value. Yet strangely enough, it came in at that precise figure. Coincidence? I’ve always been a skeptic.
It’s not coincidental at all, according to Angela. “When we have a contract, it is a reflection of the market reaction,” she explains. “An appraisal is just an opinion of value supported by market data. And one element of that market data is a contract.” In other words, what a willing buyer agrees to pay a willing seller in the open market is market data — arguably the most relevant data point for that specific property.
Here’s how it works in practice. An appraiser’s comparable sales might produce a value range with a spread of $50,000 to $75,000. The value could reasonably land anywhere within that range. But when there’s an actual contract – a real arm’s-length buyer willing to pay a specific amount – that becomes the most reliable indicator within that spread.
So what would happen if appraisers didn’t see the contract? Angela puts it bluntly: give ten appraisers the same property without a purchase contract, and you could very well get ten different values. That’s the reality of real estate valuation. It’s an opinion, informed by data, but an opinion nonetheless.
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The Three Approaches to Value (And the One That Actually Matters)
Every appraisal technically considers three valuation methodologies: the cost approach, the income approach, and the sales comparison approach. But for residential real estate, Angela says it almost always comes down to one.
The cost approach asks: what would it cost to rebuild this home from scratch, plus the land value? This method is rarely the primary valuation tool for existing homes, though it can be useful for truly unique or one-of-a-kind properties. The income approach considers the property’s rental potential — more relevant for investment properties. But the sales comparison approach — analyzing what similar homes have actually sold for — is the workhorse of residential appraisals.
“Most often in residential real estate, it’s always going to be the sales comparison approach,” Angela confirms. The reason is practical: to use the cost approach, you’d need to independently value the land, which means finding comparable vacant lot sales — data that often simply doesn’t exist in established neighborhoods.
How Appraisers Actually Pick Comps
This is where things get fascinating, and where most homeowners — and even many real estate agents — get it wrong.
You might assume the home right next door that just sold is the best comparable. Proximity must be king, right? Not necessarily.
Angela explains that after all adjustments are made, there’s a grid at the bottom of the appraisal report showing the total adjustment percentage for each comp. A home right next door might require 18% or even 27% in adjustments to make it comparable to the subject property. Meanwhile, a model match half a mile away might need only a 2% adjustment.
“That model match is probably going to have greater weight than the home right next door,” Angela says, “because it’s most likely going to have the least amount of adjustments. It’s almost like apples to apples.”
The hierarchy works like this: lenders typically start with tight guidelines — within a mile, within 20% of gross living area, no more than six months old (with at least two sales within 90 days). Once those baseline criteria are met, the appraiser evaluates which comps require the fewest adjustments. Fewer adjustments mean greater reliability. In many cases, it’s similarity over proximity, which is a critical distinction that most people miss.
The Art of Adjustments: Where Science Meets Experience
Here’s the part of appraising that honestly frustrated me when I took an appraisal course years ago. The textbook said adjustments should be based on “the knowledge and experience of the appraiser.” Which sounds a lot like “just guess.”
But Angela describes a more rigorous process called paired sales analysis. The concept is elegant: find two homes that are virtually identical except for one feature – say, a pool. Compare their sale prices. Do this several times, and you can reliably determine the market value of a pool in that area.
In cookie-cutter tract developments, this is relatively straightforward. In rural neighborhoods or those with different kinds of custom homes? Significantly more challenging. Angela says she has built an extensive file over her career cataloging paired sales data for everything from solar panels and ADUs to extra bedrooms, bathroom upgrades, and functional utility differences.
That last one – functional utility – is a concept most people never consider. Two homes on quarter-acre lots might look equivalent on paper, but if one lot is flat and the other sits on a steep hillside, their utility is dramatically different. The appraiser has to account for that, even though the lot sizes are technically identical.
Your Neighbor Sold their House too Cheap!
Staging, Smells, and Clutter: What Gets Ignored
Here’s a question I love asking because the answer surprises almost everyone: does staging increase appraised value?
Angela’s answer is unequivocal: no. “I’m looking at what remains with the house once all your stuff is cleared out,” she says. “If the bank needs to take it back and sell it, can they sell it without the staging furniture and all the pretties? The value of the house is only what conveys with the property.”
That means your beautifully staged living room? Invisible to the appraiser. Your designer furniture? Doesn’t exist in their eyes. Now, as a REALTOR®, Angela stages every listing she sells. Staging absolutely helps sell a home faster and for a higher price by appealing to buyers’ emotions. But from a pure appraisal standpoint, it’s irrelevant.
What about the less glamorous stuff, like a house that smells, perhaps of strong cigarette smoke? Angela categorizes that under condition adjustments, not as some subjective deduction. She’s looking at what it would cost to remediate: replace carpet, repaint walls, deep clean. It’s quantifiable, not emotional.
Views, meanwhile, are handled through (you guessed it) paired sales analysis. Find homes on the ocean-view side of the street versus the other side, compare sales over time, and you can extrapolate the premium. Street noise falls under external obsolescence, another defined adjustment category with its own methodology.
The Renovation Trap: Which Improvements Actually Pay Off?
There’s a well-known report called the Cost vs. Value Report (published by the Journal of Light Construction) that consistently shows most home improvement projects return less than their cost at resale. Spend $100,000 on a kitchen remodel, and you might boost your sale price by $75,000.
Angela largely agrees with this finding but adds important nuance. Professional flippers who buy materials in bulk can often achieve full returns. DIY homeowners who do their own labor can, too. But a high-end custom kitchen with premium finishes? You’re probably not getting your money back, though it should help sell the home.
So what does reliably return dollar-for-dollar value? Angela doesn’t hesitate: paint and flooring. “How many times do you walk into a house and someone is grossed out by someone else’s carpet?” she says. Fresh paint and new flooring create that clean, bright, fresh feeling that translates directly into perceived and appraised value. Light fixtures and better light bulbs are another inexpensive upgrade she swears by: anything that maximizes light in the home.
ADUs: The Valuation Gap Nobody Talks About
Accessory Dwelling Units have exploded in popularity, but there’s a significant disconnect between what they cost to build and what they add in appraised value.
ADUs can cost anywhere from $350,000 to $700,000 to construct in the greater Bay Area. But Angela explains that the appraised value adjustment for an ADU will always be lower than the cost of a standalone home, because an ADU doesn’t carry its own land value. The main dwelling’s value includes the land beneath it; the ADU is an improvement on already-accounted-for land.
The good news? As more ADUs sell as part of properties, appraisers have more data to support higher adjustment values. Ten years ago, there simply weren’t enough closed sales with ADUs to justify meaningful adjustments. That’s changing, but slowly. “If I can’t find it in the market,” Angela says, “I can’t give it a value without risk.”
Unpermitted Work: The Nuance Most People Miss
Here’s where Angela’s answer surprised me. On unpermitted additions, she’s more pragmatic than you might expect. If the work is done in a quality, workmanlike manner, meaning you can’t visually distinguish it from the original permitted construction, it can still carry a lot of value.
“If it has utility and it’s permittable, we make all of those comments in our appraisal report,” Angela explains. The appraiser notes the permit status, and it’s ultimately up to the buyer and lender to assess the risk. Notably, appraisers are actually prohibited from initiating anything that would cause a government entity to come inspect a property. They ask about permits, but they don’t pull them.
The key word is “permittable.” If the work could be permitted – that is, if it meets code, has proper utility, and integrates seamlessly, it can receive value. If it’s a Frankenstein addition that clearly violates building standards, that’s a different story.
Everyone and Everything Has One
One-of-a-Kind Properties: The Appraiser’s Nightmare
What happens when a property is truly unique — no direct comparables exist anywhere nearby?
Angela recently dealt with a monolithic dome home in her suburban Oceanside neighborhood. There isn’t another monolithic dome home in all of San Diego County. Her approach? Find other uniquely distinctive homes — in her case, a log cabin a few miles away — and use those as comparables, essentially demonstrating that there is a market for one-of-a-kind properties, even if they look nothing like each other.
For truly extraordinary properties with no comparable sales of any kind, appraisers may shift to the cost approach as the primary methodology. But as Angela notes, these properties often can’t qualify for conventional financing anyway. If the cost to rebuild far exceeds what anyone would actually pay, a hard money loan may be the only option.
The Hidden Value Appraisers Can’t Touch
Perhaps the most striking revelation from my conversation with Angela: there are market factors that clearly drive buyer behavior and sale prices that appraisers are legally prohibited from considering.
School districts are the prime example. Appraisers cannot mention school districts in their reports. Period. Yet any agent working in the field knows that school district boundaries can create six-figure price differences between homes on the same street.
Angela shared another illuminating example from her market: homes near a synagogue in Rancho Bernardo command significantly higher prices because religious observance requires walking (no driving) on certain days. That proximity premium is real, measurable, and utterly invisible on an appraisal report. Appraisers account for it indirectly by using comps from the same neighborhood, but there’s no line item for “walking distance to house of worship.”
Geographic Competency: Why Your Appraiser’s Local Knowledge Matters More Than You Think
Angela emphasizes something she calls geographic competency, and it’s arguably the single most important factor in appraisal accuracy.
In her own market, she points to two adjacent hills in Oceanside: Fire Mountain and Alta Loma. They’re within a mile of each other and would meet every technical guideline for comparable sales. But there’s a $200,000 to $300,000 price difference between them because one is simply more desirable than the other. An out-of-area appraiser who doesn’t know this distinction could catastrophically misvalue a property.
“I don’t think you should appraise in every community that you’re licensed to appraise or sell,” Angela says. It’s the same principle I preach about real estate agents. Hyperlocal expertise isn’t a luxury…it’s a necessity.
The Bottom Line
Appraisals are simultaneously more scientific and more subjective than most people realize. There are genuine formulas, guidelines, and data-driven methodologies behind every number on that report. But at the end of the day, it’s still an opinion — and ten appraisers can produce ten different values for the same home.
Understanding how that opinion is formed — what gets measured, what gets ignored, and what falls into the gray area in between — gives you an enormous advantage whether you’re buying or selling a home, or simply trying to understand what your home is actually worth.
About Angela Ervin
Angela Ervin is a Broker Associate with Compass in San Diego, specializing in North County Coastal San Diego, including Oceanside, Carlsbad, Encinitas, Leucadia, Solana Beach, Del Mar, Vista, and San Marcos. With 25 years of appraisal experience and a deep understanding of home valuation, she brings a uniquely data-driven approach to every transaction.
Phone/Text: (760) 822-7833 Email: [email protected] Website: ervinrealtygroup.com
Frequently Asked Questions
Do appraisers see the purchase contract before they inspect the home?
Yes. In a typical purchase transaction, the appraiser receives the signed purchase contract before the inspection, which means they already know the agreed-upon price. Because the contract reflects an arm’s-length market agreement, it becomes a meaningful data point inside the appraiser’s overall analysis.
Why do appraisals so often come in at the exact contract price?
Appraisers usually develop a value range from comparable sales, and the final opinion can reasonably land anywhere inside that spread. When there’s a bona fide contract price sitting inside that reasonable range, the contract can act like the most reliable “anchor” because it reflects real buyer behavior for that specific home.
How do appraisers choose comps, and is the closest sale always the best comp?
Not necessarily. After adjustments, appraisers look at which comparables require the fewest total adjustments, because fewer adjustments typically means a more trustworthy apples-to-apples comparison. A model match farther away can carry more weight than the closest sale if the closest sale needs heavy adjustments to “fit.”
What are “adjustments,” and how are they determined?
Adjustments are the appraiser’s way of accounting for meaningful differences between your home and the comps (condition, upgrades, utility, views, noise, etc.). A rigorous way to support adjustments is paired sales analysis: comparing near-identical homes where one feature differs, then using multiple examples to estimate what that feature is worth in that specific market.
Does staging increase appraised value?
No — at least not directly. Appraisers focus on what conveys with the property, not furniture and décor that leave at closing. Staging can absolutely help buyers fall in love (and pay more), but the appraisal is based on the real estate itself and market evidence.
Do smells, clutter, or cosmetic issues affect the appraisal?
They can, but usually through “condition” and cost-to-cure logic rather than emotion. For example, cigarette smoke can translate into remediation costs like paint, flooring, and deep cleaning, which the appraiser may treat as a condition adjustment. The idea is to quantify impact, not react to it.
Which home improvements tend to help value the most?
Expensive custom remodels often don’t return dollar-for-dollar, especially when the finishes are highly personalized. On the other hand, paint and flooring can be surprisingly powerful because they improve perceived condition in a way buyers consistently reward, and appraisers can support that through market reaction.
Why don’t ADUs always add as much value as they cost to build?
An ADU is an improvement on land that’s already been valued as part of the main home, so it doesn’t carry its own separate land value the way a standalone house would. Appraisers also need enough local sales data to support larger ADU adjustments, and in many neighborhoods that data is still catching up to construction costs.
Can unpermitted work add value in an appraisal?
Sometimes. If the work is high quality, has real utility, and is realistically “permittable,” an appraiser may still give it value while clearly noting the permit status in the report. The lender and buyer then decide how to handle the risk.
What happens when a home is truly unique and there are no obvious comps?
Appraisers may broaden the search to find other distinctive properties that demonstrate a market for “unique,” even if they aren’t visually similar. In extreme cases where comparable sales are nearly impossible, the appraiser may lean more on the cost approach, though financing can get trickier for one-of-a-kind properties.
Why don’t appraisal reports talk about school districts if buyers care so much?
In the interview, Angela notes that appraisers are prohibited from mentioning school districts in the report, even though school boundaries can drive large price differences. Appraisers often capture those premiums indirectly by selecting comps inside the same market area, but it won’t appear as a labeled line item.
How important is it that the appraiser knows the neighborhood?
It’s huge. Two areas can be within a mile of each other and still have dramatically different price levels based on desirability, micro-location, and buyer perception. An appraiser with strong “geographic competency” is more likely to choose the right comps and interpret the market correctly.
Everyone wants to know…
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