Appraisal Insights for Private Lenders: Top 5 Tips to Secure Your Loan

In private lending, appraisal insights for private lenders can mean the difference between a safe investment and an avoidable loss. Unlike online estimates like Zestimates, professional appraisals dive deeper. Read why that matters.

However, let’s be clear: Appraisals can vary significantly in quality, and to mitigate risk, lenders must review them thoroughly and analytically. A well-prepared report can highlight potential red flags, confirm assumptions, and provide the lender with peace of mind. Skim over it, and they might miss something costly. In this article, we’ll walk through five appraisal insights that private lenders should always pay attention to, because lending blindly is a risk no one can afford.

Private Lending Isn’t Banking

Private lenders don’t operate like banks — and that’s the whole point. They move faster, offer flexible terms, and take on deals others may not finance. But those advantages come with added risk. Unlike traditional lenders who have in-house appraisal departments and layers of underwriting, private lenders often have to make decisions quickly, sometimes with limited information.

That’s why understanding appraisals, not just glancing at the value, is critical. If a lender is putting up capital or managing investor money, it’s their job to know whether the deal is actually solid.

1. Know Who’s Behind the Appraisal

The reliability of an appraisal starts with the appraiser. Private lenders want someone who knows the local market, understands the type of property being financed, and isn’t tied to the borrower in any way.

Here’s what to check:

• Does the appraiser regularly handle this type of property?
  
• Are they licensed and certified in that state? For commercial or complex residential properties, do they hold any advanced credentials?
  
• Were they selected by the lender or an independent third party — and not by the borrower?
  

Why it matters: An appraiser who lacks experience or isn’t truly independent might provide an appraisal and opinion of value that doesn’t hold up when it counts.

Tip: Ask for their qualifications. A good appraiser won’t hesitate to share them.

2. Look Beyond the Number: What’s the Scope?

Not every appraisal is done under the same conditions. Sometimes the value reflects the property “as-is.” At other times, it’s based on future repairs or the completion of a project. These details can easily be overlooked, but they affect the loan and the risk in a big way.

Things to check:

• Is the value based on the property in its current condition, or is it assuming construction work/renovations are done?
  
• Are there any assumptions the appraiser made that could change the value if they turn out to be wrong?
  
• What’s the effective date of the value? If it’s months old, is it still relevant?
  

Tip: Read the first few pages and look for terms like “extraordinary assumptions” or “hypothetical conditions.” These are the appraiser’s fine print — and a heads-up that something might need more analysis and consideration.

3. Dig Into the Comparable Sales

Sales comparables are the backbone of most appraisals — and often the most misunderstood. A comp that’s too far away, too old, or not truly similar can skew the value.

Ask:

• How close are the comps to the subject property?
  
• Are they actually similar in size, condition, and features?
  
• Were the sales recent, or are they pulling old data in a changing market?
  
• Are the dollar adjustments realistic, or are they just filling in gaps?
  

Tip: Look up the comps online or even drive by them if possible. Sometimes what looks good on paper doesn’t match what’s on the ground.

4. Condition Is Everything

The lender might be lending on a fixer-upper, and that’s fine. But the key is making sure the appraisal reflects the true current condition. If the property needs a new roof, has water damage, or has been poorly maintained, that will affect the value and should show up in the appraisal report.

What to look for:

• Did the appraiser mention any visible issues?
  
• Are the photos clear and recent?
  
• Is there a condition rating (like C5 or C6 for residential)?
  
• Did the appraiser include or exclude repair costs?
  

Tip: If there’s significant deferred maintenance and no repair estimates are provided, that’s a blind spot. Either get a contractor’s opinion or reduce the loan accordingly.

5. For Rentals and Commercial Properties: Check the Income Calculations

If the property produces income, the Income Approach in the appraisal needs a hard look. The value may be built on assumptions about rent, expenses, and vacancy that don’t reflect reality.

Things to confirm:

• Are the rent projections based on actual leases or just market estimates?
  
• Are expenses fully accounted for (taxes, insurance, repairs, management)?
  
• Is the cap rate used supported by data from the area?
  
• Does the report mention whether the current use is the highest and best use?
  

Tip: If the Income Approach looks too unrealistic, it might be a good idea to ask for more clarification or even get a second opinion. Cross-check with local data, the rent roll and local trends and expectations.

Wrapping It Up

A strong appraisal gives the lender confidence. A weak one puts their capital at risk. By reviewing the report through these five lenses — who did the appraisal, what the value actually reflects, how solid the data is, what shape the property is in, and whether the income numbers hold up, the lender is doing more than checking a box. They are protecting themselves.

As a private lender, their security is only as strong as their due diligence. So for the next appraisal report, study it, question it, and seek to understand it. Because smart lending starts with seeing what others miss.

You can click here to watch a video. For more information, please click here to contact us.