4 Suggestions if your home appraisal comes in low

What if your home appraisal comes in Low?  Here are 4 Steps that can help you get the value revised

When you are selling your home one of the worst deal-killing things that can happen is that the appraisal comes in low stating that your home is worth much less than your asking price.  Since May 1, 2009, we've been having problems with appraisals like never before since May 1, 2009, when the Home Valuation Code of Conduct (Appraisal Standards) HVCC were implemented, we've been having problems with appraisals like never before this, unfortunately, happens frequently

Even years after the Implementation of HVCC every month about 10% of real estate agents report that a low appraisal has resulted in a lost sale since normally cash buyers won’t pay what they view a house is worth and mortgage lenders will not lend on the lesser of the home’s value or the sales price.

So if your buyer gets an appraisal for less than you believe the home is worth what can you do?  One of the first things that most people attempt to do is to go after the lender saying their appraiser did a poor job and to order a second appraisal, however, this is expressly forbidden by the HVCC.  The first thing we need to clear up is that since HVCC the appraisers do not work for the bank.  This is why when your buyer has the appraisal ordered they must pay the appraiser directly.  HVCC takes many steps that are covered in this great article by Dan Melson located here that assure appraiser independence.  The lender can help you challenge the appraiser but you will need some assistance from your real estate agent and the lender will send the message to the appraiser through the Appraisal Management Company (AMC).

In the end, an appraisal is an appraiser’s opinion and with additional information, they may have made an honest mistake or oversight that can be corrected.

Here are four suggestions in no particular order that you can take in an attempt at correcting a low appraisal.

Suggestion 1 if your home appraisal comes in Low: Show that comps used are poor or there are missing comps.

Review the appraisal and the appraiser may not know all of the homes that recently sold your in your subdivision or neighborhood.   Generally, the appraiser will only find comps that are listed in the Multiple Listing service (MLS).  So, for example, a home changed hands through for sale by owner (FSBO) or otherwise without being listed and it is similar to your home in value then it’s new information the appraiser should see.

Also, bank foreclosures or short sales can reduce the value of similar homes so it is key to review the comps used in the appraisal.  If this is the case then these need to be brought to the appraiser’s attention and you can say that a particular sale was distressed or the house required extensive renovation.

If your property is unique then it will be hard to find comps that are a better fit for your property.  You may have to present comps from a different but similar subdivision.

If sales in your neighborhood are infrequent that can be another problem.  Properties used for comps should be sales that occurred within the last 3 to 6 months.  If you find that the appraiser used comps that were older then you may have a case to show that the market has changed.

Suggestion 2 if your home appraisal comes in Low: Have there been any substantial changes to the property?

The appraiser might have overlooked items such as a kitchen or bath makeover, new Heating or Air Conditioner or new or updated roof.  Make sure these are noted in the appraisal.  If not then you will need to have the appraiser make note of them possibly adjust the value.  Many times appraisers find it good to have the owner present during the inspection since they can ask these sorts of questions and get them answered immediately.  So if you can’t be there during the appraisal inspection then you will want to leave a letter documenting what has done to the home.  So, after the appraisal comes back and you notice the appraiser missed key items you can have this information relayed to the appraiser.

One key thing to remember is that cost to upgrade something almost never equals value unless the upgrade was to replace something that was at the end of its life.

Suggestion 3 if your home appraisal comes in Low: Get a Second Opinion.

While as noted above HVCC specifically prohibits a lender from requesting a second appraisal unless there is a reasonable basis to believe that the initial appraisal was flawed or tainted and such basis is clearly and appropriately noted in the loan file.  Getting a second appraisal doesn’t guarantee anything but it can sometimes work.  Remember, that the appraiser has to answer to underwriters and without really solid evidence they are not likely to change the value noted in an appraisal.

Suggestion 4 if your home appraisal comes in Low: Giving an appraiser a specific and documented reason to change their opinion of value.

The first reaction that most people simply say the appraiser is wrong.  This has a zero chance of getting the value changed.  In order to get the appraiser to reexamine the appraisal value, there has to be additional information provided.  Read the appraisal and see if you or your real estate agent can provide additional comps.  This is the number one most persuasive argument.

The best way to understand what a piece of real estate is worth is to find recent solds in the subdivision and to adjust the price up or down to take into account differences.  If you find a home that is substantially the same in the neighborhood that sold recently for more than your appraisal this would be a good comp to use and bring to the appraiser’s attention.

If you have any additional questions, let us know we’re always here to help.