The appraisal gap in 2026
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The real estate industry is facing an appraisal gap in 2026, where appraisals are not accurately reflecting the value of homes due to outdated data and lack of comparable properties. This gap is causing problems for lenders and borrowers, resulting in longer lock-up periods, more extensions, and a higher rate of deals falling through.
Real estate valuations are struggling to keep up with current market conditions. The appraisal gap is becoming a significant issue in 2026, with appraisals often coming in higher than the contract price. Major climate events, such as flooding and wildfires, are impacting property values and making it difficult to find comparable properties. Automated Valuation Models (AVMs) are also contributing to the problem, as they rely on outdated data. The lack of comparable properties due to elevated mortgage rates is further exacerbating the issue. To manage appraisal gaps, originators need to consider solutions such as using quality control standards for AVMs and accounting for local nuances in the appraisal process.
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