How to Win an Appraisal Dispute
It's one of the most uncertain and nerve-wracking parts of most real estate transactions. Agents are often nervous about appraisal contingencies throwing a wrench into their contracts. Home owners are often afraid that foreclosure down the street will prevent them from improving their rate or escaping a soon-adjusting ARM. Mortagage loan 
officers are worried their deal, tight on LTV, will be ruined with a short appraisal.
Since HVCC was implemented in 2010 and lenders & Realtors lost all control over appraisals and who would perform them for their transactions, this has been one of the biggest, if not the very largest, headache in the mortgage industry. More often than any other reason (especially on refinances), low appraisals are deal killers. Most people know that there is a way to dispute an appraisal, and most lenders have an appraisal rebuttal process, but industry insiders joke about how frivolous many of these attempts are. To get an appraised value increased, you basically need a professionally licensed, extremely knowledgeable market expert, the appraiser, to admit they were either wrong, or possibly missed something. This comes after the appraiser has already been paid, and since they have no interest in the consummation of your transaction, it is a very difficult thing to do.
BUT...it can be done. I've done it several times, with my most recent victory coming today. Here's how.
DO NOT
- Ask for a higher value or for the appraisal to 'hit a number'. You won't get it. Outside of the person staring you back in the mirror, no one cares about your paycheck. An underwiter doesn't care about your paycheck OR your clients wants/needs/reasons for doing the loan - they care about risk, and they care about accuracy. Asking for a higher value comes across as a plea to "save my deal!" rather than asking for a more accurate portrait of the market.
- Ask the appraiser to kindly remove their head from their rear end. I've seen some really terrible appraisal reports. I've also seen some really rude appraisal disputes with comments like "this appraiser is 
obviously an idiot and doesn't know how to do their job". That's not going to help your cause. Insulting a person and/or their work is not a way to make them want to work with you or help you or your clients in any way. A bad appraisal or one with poor data is a frustrating thing. Keep your frustration to yourself.
- Be unrealistic. Yes, your clients have granite countertops and a finished basement. These 2 items are not going to get you a $500,000 valuation in a $250,000 market. When it comes to real estate, one of the most important skills to learn is managing the expectations of clients.
DO
- Thoroughly review the appraisal report. Every page. Every word. Know the report inside and out, and try to get inside the appraisers head - why, when you think the valuation should be so much higher, did they disagree? Did they have good points? Find out EXACTLY what you're disputing or asking them to reconsider.
- Study the market. Are there different townships within a short distance of your property? Different school districts? More or less desirable areas? Different taxes? Appraisers will often be asked to find comparables within a certain distance of a property. They may have done a good job when it comes to distance, but failed to recognize better comps just a little bit further away.
- Compare comps & find better ones. The appraiser already found comps that they thought were sufficient. Your job is to find better ones, and show WHY they're better. Unless the appraiser really missed the mark, you're going to need to go beyond bedroom count & square footage in your analysis. Perhaps they used a comp that was demolished the following week. Perhaps they used a comp that was rehabbed and sold a short while later for a much greater amount. Perhaps they simply used public data that was incorrect and you can refute it.
- Have an argument. You're not going to win a dispute when you think a property is worth $400,000 and the appraiser believes it's worth $395,000. An appraisal, afterall, is an opinion of value, and you need to show why their opinion may have been formed by inaccurate data. Keep in mind, beliefs and feelings are not data.
- Keep a cool demeanor. It's frustrating to receive a report you know is inaccurate. It's at the very least an inconvenience to your clients (who, of course, blame you). Be eloquent in your dispute, clearly communicate your position, and be cordial in requesting they reconsider their report and review the data you provide.
In my most recent victory of an appraisal dispute, I did my market research and realized that 2 comps, although extremely close in distance, were just a few blocks into a neighboring township - a township considered less desirable, with much higher taxes, and generally lower property values. I looked at the property histories and realized that one of the comps used was purchased, flipped, and sold for $100,000 more than the sales price indicated on the appraisal - although an appraiser can't use future sales as data, I made it clear that this newfound data DID support the trend of higher values in the local market. I found other comps for the appraiser - further in distance from my property, but within the same township and similar in lot size, bed/bathroom count, square footage, use, and amenties. The result was the appraiser analyzing my data, agreeing that it supported a higher market value, and amending our subject property with a new value $70,000 higher than the initial valuation.
Appraisal disputes are not fun. They are frustrating, time consuming, and sometimes result in nothing more than a waste of time. However, if you want to separate yourself from the competition and do the very best by your clients, it's worth knowing how to do them the right way. Set your frustration aside, do your research, gather your data, and present it clearly. Once in a while, you get the satisfaction of an appraiser agreeing with your dispute, and you get to be the hero to your clients. There's no better feeling than that.
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