I have said for years that something needs to change about the appraisal process when buying a home. I again today find myself in the middle of another bad appraisal, making everyone feel bad about the transaction and potentially crushing the sale. Here's how it works:
You find a home you love, you see it's got some recent similar sales in the vicinity, some higher, some lower, you decide the price seems fair, negotiate a bit and ratify a contract. Then your lender sends out an appraiser (that you the buyer pays for) to be sure this prices is legitmate. And this appraiser could be having a bad day, could be coming in from 200 miles away, could be just plain stupid, and decide your house is not worth what you think is fair to pay, because of any of the above mistakes. The seller still owns the house, and says, "forget this, I will put it back on the market and try my luck with another appraiser." Which in this market, they will probably do just fine. You the buyer looks at the other available inventory, and sees that it's either inferior or higher in price, and has to decide whether to lead the deal die or just take it at higher than appraised value. If you are putting a ton of money down, all it affects is your loan to value ratio. If you are only putting 20% or less down, it can make your loan cost more, or make you have to come up with extra cash to make up the difference, or kill the deal completely if none of the above are feasible. The seller, afterall, still owns the house and can decide to not sell it to you if you back out on your previous price. He doesn't have to lower it because this appraisal came in low.
For example, I have one right now where the appraiser used only 3 comps, 5 are more standard, and one of the three was a 2 bedroom 1 bath and the other was a 2/2 without a garage. My buyer's house (we hope!) is a 2/2 with a garage. Were there recent sales that were 2/2s with a garage that the appraiser omitted? YES. Why? Who knows? She also omitted better comps with lake views and used those without that sold for less. Ours has a lake view, garage, built in bookcases and is a 2/2. She adjusted down $8,000 because the condo doesn't have granite countertops. There is no way granite countertops would cost that much unless they were completely exotic - the kitchen just isn't that big and the comparable property had basic Uba Tuba.
We don't get to ask why the appraiser did the report this way unless we go through a protracted, complicated 2 week process that is likely to delay closing and fail. Appraisers answer to no one. They can stand by their value in the face of stacks of comps they missed. Only the undewriter can question their report and honestly, what does an underwriter sitting in an office in Phoenix know about a condo community in Fairfax, Virginia?
Why is this so? Why is there not a formal, universal appeals process for rebutting an appraisal. You as a buyer should be able to do this and it should be expected and accepted by your lender. The lender I spoke to today said he'd NEVER seen an appraiser adjust their value. I know I've only had it happen once, and that's because another sale recorded and he was able to include it.
Why are appraisers completely autonomous and unaccountable to anyone?
I am not sure how to make this change, but it is absolutely something that needs to be done. Look forward to a lively discussion.
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