Originally published in the October 3, 2025, issue of AI’s Appraisal Now
Reprinted with permission from AI

Some recent media coverage has suggested that inflated appraisals may be contributing to valuation-related lending problems in “fix and flip” scenarios in cities like Baltimore, Maryland. But there’s no evidence to support that claim. What’s really happening is a breakdown in how value premises are interpreted and applied—particularly by institutional investors and analysts who may not fully understand the difference between as-is and as-completed market values.

Two Different Values, Two Different Purposes

Appraisers know that the as-is market value represents what a property would sell for today, under current conditions. It’s the foundation for most mortgage underwriting and risk assessment.

By contrast, an as-completed value is hypothetical—it reflects what a property is expected to be worth after improvements are made. It’s essential for construction and renovation lending, but it must be understood and managed as a projection, not a present condition.

When institutional investors treat as-completed values like as-is values in forecasting or securitization models, they may inadvertently overstate the collateral strength of their portfolios.

It’s a Forecasting Problem, Not an Appraisal Problem

When those forecasts fall short, it’s tempting to point fingers at appraisers. But the reports themselves typically make value conditions, assumptions, and scope crystal clear.

The problem isn’t in the valuation, it’s in how the valuation is interpreted. Inadequate due diligence, misaligned underwriting assumptions, or weak monitoring of renovation progress can all lead to risk exposure that has nothing to do with appraisal performance.

In some cases, these institutional investors appear to be valuing properties based on projected rental income or anticipated resale prices rather than current market conditions. That approach can quickly detach from reality—not unlike Zillow’s short-lived iBuyer program, where forecasts based on future resale potential didn’t always match market behavior.

The underlying problem isn’t the appraisal; it’s that investment models are substituting speculation for analysis, treating hypothetical outcomes as if they were already realized. When those assumptions fail, appraisers often get blamed for market outcomes that were never within their scope or control.

A Reminder of the Appraiser’s Role

Appraisers remain the profession most firmly rooted in independence, ethics, and analytical discipline. Every credible appraisal report clearly states the value definition, scope of work, and assumptions behind the assignment.

When that information is read and respected, it provides one of the most reliable safeguards in real estate finance. The challenge isn’t to change the appraisal—it’s to ensure those relying on it understand what it says.

Inflated appraisals aren’t the story here. Misapplied assumptions are. Understanding whether a valuation is as-is or as-completed is fundamental to sound lending, risk modeling, and investor decision-making. When appraisals are interpreted accurately, they remain the most dependable foundation in the mortgage system.