Which valuation method do lenders prefer for estimating a property's market value?

Lenders typically prefer the appraisal method for estimating a property's market value because it provides a thorough, systematic evaluation conducted by a licensed professional appraiser. This process involves analyzing various factors such as comparable property sales, the condition of the property, location, and market trends. The appraiser adheres to standardized guidelines and regulations, which ensures accuracy and credibility in the valuation process.

The appraisal offers a detailed report that is often required for securing mortgage financing, as it reflects an unbiased estimate of a property's worth. Since lenders are making significant financial commitments, they rely on the appraisal’s comprehensive analysis to assess risk and make informed lending decisions.

In contrast, while Automated Valuation Models (AVMs), Broker Price Opinions (BPOs), and Comparative Market Analyses (CMAs) can provide estimates of market value, they do not carry the same level of rigor and professional endorsement as a formal appraisal. AVMs operate using computer algorithms and may lack the contextual insight of a human appraiser, while BPOs and CMAs, conducted by real estate agents, can be subject to bias influenced by personal interests. Therefore, the appraisal method stands out as the preferred choice for lenders seeking reliable market value assessments.