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How to Challenge a Low Real Estate Appraisal on My Home

Mar 14th, 2018 | jfinney@talktotucker.com

The appraisal is one of the most important factors dictating what you can sell your home for. Banks will generally only lend buyers enough money to buy a home priced near or above the appraised value, so there is usually not much wiggle room for you to set your price higher.

You are stuck pricing your home in line with the appraisal value – a sobering fact if you discover that the appraiser valued your home significantly less than you anticipated.

Fortunately, all hope is not lost. There are ways to challenge a low real estate appraisal. There is the possibility that you can eventually get a better appraisal value than you did originally, as long as you are willing to take the necessary steps.

The buyer is also probably second guessing whether they paid too much for your home as well. These are frustrating and stressful times for sure. Nobody wants to see a low real estate appraisal come in on a property.

The following information will give you some ideas on what you can do to get an improved appraisal value, and the higher sale price that goes along with it. Disputing a low real estate appraisal is not fun but it’s a necessary evil if you want to get the agreed upon price for your home. You should first understand how the appraiser figures out the value of a home before challenging his or her appraisal.

Here is a quick summary of how an appraiser determines home values

  • The sales prices of similar, recently sold properties in close proximity to the subject property in the last six months or less.
  • The average time it takes for homes to sell in the general neighborhood.
  • What are the price and value trends of homes in the neighborhood? Are values trending upward or downward?
  • What is the supply and demand of homes at the present time? Is there a shortage or glut of homes?
  • What are the properties condition and construction quality?
  • What is the square footage and gross living area of the home?
  • What traits does the home have including bedrooms, bathrooms, and any distinct features?
  • What major home improvements have been made since the date of purchase?
  • What is the lot size relative to other homes in the neighborhood or properties in the general area.
  • What is the zoning of the property?
  • Is the home unique in a good or bad way?
  • Does the home have any functional obsolescence?

In figuring appraised value, appraisers use what’s known as bracketing when making adjustments on a home’s value. Keep reading to see all the best tips for going about disputing a low real estate appraisal.

Fighting A Low Appraisal Value

Once a seller finds out they need to fight a low appraisal, it’s important to know exactly how to rectify the situation. These are the steps necessary to go about challenging a low appraisal on your home.

Getting a real estate appraisal increased is not easy to do. Many real estate appraisers are reluctant to change the value on a home unless they have made some obvious errors in their report. These are the steps you need to take to dispute a low appraisal valuation.

1. Get your own copy of the appraisal.

You can’t figure out what went wrong if you don’t have the full appraisal in front of you. Get a copy and go over it with your real estate agent. You will be requesting to get the appraisal report from the buyer or their agent. When a home does not appraise the buyer is given a copy of the appraisal by their lender. You will not be able to fight a low appraisal without the report.

2. Look for mistakes.

The appraiser is only human, so there is a possibility that he or she made one or more mistakes on the appraisal. Placing your home in the wrong neighborhood, calculating less square footage, listing fewer bedrooms or bathrooms, etc, can all negatively impact the value of your home.

3. Look for comparisons that you don’t agree with.

Blatant errors are not common, so you may not find anything that is obviously wrong. But there is a good chance you will find some issues with the homes that the appraiser compared yours with.
Real estate values are relative, so the appraiser has to compare your home to similar properties to decide the current market value. If the appraisal priced your home noticeably less than you and your Realtor believe it should be, the most likely problem will be the comps the appraiser made.

There are a number of categories where comparisons can be inaccurate, including:

  • The most accurate comparison will use homes that are as close to yours as possible. If you see comparisons that are a stretch, or you can find more accurate comparison homes, then you may be able to contest the appraisal.
  • One of the more common areas where real estate appraisers make mistakes is assigning a value to a particular neighborhood. If the appraiser is not from the area they might not know the difference of one neighborhoods appeal vs another. In real estate, it is very common for buyers to place a higher value on one neighborhood vs others in the same city or town.

4. Make sure there are no permit issues.

If you find that the appraiser failed to include part of your home, like an addition or remodel, there may be problems with the permits. The appraiser may have been unable to locate permits for the work that was done to your house, which means that the improvements can’t be included in the appraisal.

You may have tens of thousands of dollars in value missing, all because a permit is missing. This is one reason I am constantly emphasizing the importance of getting building permits to my clients.

You should be able to find permits in your county or city government office. If for some reason you can’t find them, do your best detective work to figure out where they are. Otherwise, you can’t take advantage of your improvements.

5. Create your own (unofficial) appraisal.

Work to find comparable homes that shine a better light on the value of your home. You can also make a list of every feature that adds value to your home, including any upgrades you have made, improvements like granite counter tops, new cabinets, kitchen and bathroom renovations, finished basement, spectacular views, hardwood floors, etc.

Anything you can think of, that your real estate agent agrees with, should be included. You want to have a document that demonstrates the error of the initial appraisal and shows the true value of your home. Look at the comparable properties the appraiser used and see if these homes have the same level of upgrades and improvements. One of the best ways to market a home is by listing your improvements anyways. Take the time to do this in case the sale does not go through and you have to put your home back on the market.

Make sure you go over the factors that affect home value with your real estate agent.

6. Petition the appraiser for another appraisal.

With your argument in hand, you can try to see if the appraiser will take another stab at appraising your home. In most cases, you will ask for reconsideration through the bank or lender that hired the appraiser.

7. Take a hard look at the appraiser.

If the appraiser is stubborn and refuses to re-appraise your home, you will need to push a little harder. The first thing you can do is question the skills and abilities of the appraiser. Not everyone is good at his or her job. Just don’t be rude. Keep your emotions in check and treat everyone with respect.

As crazy as this sounds, make sure you did not get a drive-by appraisal where the appraiser did not enter your home. This will dramatically increase the chances that the appraisal is not a true measure of your home’s worth. It is also more common than you might think. It is also a possibility the appraiser may be new to the area, new to the job or have some other issues that prevented an accurate appraisal.

Common ways appraisers make mistakes with an appraisal include:

  • Doing a drive-by appraisal.
  • Using old outdated comparable sales.
  • Not accounting for recent home improvements.
  • When the appraisal has clerical errors.
  • When the appraiser does not know the area well enough to make location adjustments.

8. Request another appraisal.

If you have a strong argument that the initial appraisal was inaccurate, including a thorough examination of the value of your home that contradicts the appraisal, you may be able to request another appraisal. You may be able to get the original appraiser to try again, or you may need to demand a second appraiser. Again, your requests will need to be aimed at the bank or lender that hired the appraiser.

9. You can hire another appraiser yourself.

If you are not getting anywhere with your requests for another appraisal, your only option may be to hire an appraiser yourself. Doing so will cost money, which you will need to pay, but it may be worth it if you truly believe that you will get better results. Of course, you may get the exact same results. But if you know that your home is worth more, it is probably worthwhile to fork over the cash to ultimately get a better selling price for your home.

Keep in mind, however, that this will not rectify the situation that you are in because the buyer’s lender is probably not going to accept your appraisal. Most lenders have a group of appraisers that can be used to ensure the bank should be lending money to a particular party. These appraisers are on their “trusted” list. You might be doing this just for your own piece of mind moving forward with procuring the next buyer.

What Happens if Your Appraisal Dispute Fails

So what happens if you go through with challenging the banks appraisal and the appraiser won’t budge? There are essentially four options that can take place when an appraisal comes in low and the bank will not lend the borrower the money based on the low appraisal.

  • You can reduce the sale price of the home to the appraised value.
  • The buyer can come up with additional money down that will bring up the loan to value ratio.
  • A combination of these two things where the seller drops the price some and the buyer comes up with additional down payment monies.
  • The seller gives the buyer a second mortgage for the difference between the sale price and appraised value.

As a seller, I am sure dropping your price to meet the lenders appraisal is not your first choice. Going forward, however, you really need to figure out if you have been fortunate to find a buyer who was really overpaying for your home. In other words was the appraiser correct in his assessment of your home’s value? How likely is the same scenario likely to come up again with the next buyer?

You should make sure you huddle up with your real estate agent and get a complete handle of what is going on in your local real estate market. Are you in a seller’s or a buyer’s market? Are home values heading up or down? These answers to these questions should help shape your decision-making process moving forward.

Not every low appraisal has a happy ending like this. Every circumstance is different. You need to weigh your options and figure out which is the best way to go for your financial and life circumstances.

Common Ways Appraisals Come in Low

One of the more common ways an appraisal comes in low is when a homeowner sells their home for sale by owner and the buyer is unrepresented by a real estate agent. Talk about the blind leading the blind. The owner sets a price way too high and a buyer with no agent foolishly pays the price because they don’t know local real estate values.
Other foolish methods of incorrectly pricing a home include:

  • Using a Zillow estimate of value or some other online valuation tool. This is the absolute worst way to figure of the value of your home!
  • Going by the assessed value of your home. The assessed value and market value have nothing in common with one another.
  • Listening to an unskilled real estate agent who does not know how to price homes properly.
  • Not speaking to a professional Realtor or appraiser and pricing it yourself.
  • Using price per square foot as the means of establishing your value.

Using these methods for valuing a home is only going to lead to a very inaccurate conclusion.

By Bill Gassett, www.maxrealestateexposure.com

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