"Real estate valuations have customarily leaned heavily on historical data as one of the most important factors used to determine the appraised value of homes. However, there are a few areas that the past-anchored valuation system fails to build into the appraisals, leaving an appraisal gap that is becoming difficult to ignore in 2026."
"An important lesson that has been discovered more recently in the real estate industry is that not all properties in climate-impacted or high-volatility markets fit standard comps. As a result of recent climate incidents, many insurers have pulled out of high-risk markets, and transaction volume has dwindled."
"The latest technology in real estate has pushed lenders towards Automated Valuation Models (AVMs) as a faster appraisal tool. However, AVMs are another factor contributing to the 2026 appraisal gap problem. While these models help lenders speed up their loan processing, the accuracy of AVMs is not flawless when the underlying data is sparse or outdated."
"For several years, mortgage rates have been elevated and constraining the market. This has meant that comp volume has been significantly reduced, further complicating the appraisal process."
Real estate valuations traditionally rely on historical data, including comparable transactions and market trends. However, this approach is failing to account for climate impacts, resulting in appraisal gaps. Major climate events have led insurers to withdraw from high-risk markets, reducing the availability of relevant comps. Additionally, the rise of Automated Valuation Models (AVMs) has introduced accuracy issues due to outdated data. Recent regulations aim to improve AVM quality control, but the overall market remains constrained by fewer comparable properties and elevated mortgage rates.
Read at www.housingwire.com
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