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Death By Appraisal

Real Estate Agent with Mountain Retreat Real Estate

If you've made it passed the headline, you already know what this is going to be about.... yep, losing deals because of low appraisals!

We've all been there. Perfect listing, perfect buyer, and a lot of excitement both ways. And then comes the coroner's appraiser's pronouncement "low value." 

Because we've all been there, I'm sure I'm not telling you anything that you don't already know. A low appraisal can be a deal squasher, and in most cases, there is very little that you can do about it. There are ways that you can appeal a low appraisal obviously, but they are limited in scope, and unlikely in their effectiveness. 

Perhaps the single biggest gripe I have about the modern appraisal is that it is not thoroughly subjective

I know that instantly there are some folks disagreeing. "It's not subjective!" you say. Really? So there are objectively "more desirable" and "less desirable" locations on this planet? It is somehow just undisputedly and objectively better to have mature landscaping? Below grade square footage is just objectively worse somehow? 5 bedrooms is just objectively better than 4 rooms and another common area? 


I'm sorry, these things and 100 others all all subjective opinions. Maybe they are subjective opinions held by many people, but they are still subjective opinions. 

The problem though is that while appraisers use some subjective criteria (and pass it off as objective standard), they discount others. Being at the end of a quiet, dead-end street. A unique design aesthetic. The orientation of the house on the property. These are all subjective factors that matter to lots of buyers, but somehow are excluded from an appraisal. There are dozens of other factors that could fall into this category as well. 

The Ultimate Litmus Test - The Market

So what's the most accurate way to determine what a house is "worth?"

What's the best way to know what anything is worth--start asking the market!! (the market being prequalified buyers that are looking to buy). 

Because I do a lot of work with atypical properties--cabins, homesteads and off grid properties, I have a particularly interesting relationship with appraisals. In a lot of cases, there are very few "comps", out there for appraisers to use. In some cases, appraisals aren't even part of the equation, because there aren't any lenders that will lend against atypical properties (in these cases, it's cash or seller financing). 

However, one of the most recent properties that I have had an appraisal issue on was a suburban home (https://www.utahrealestate.com/1455203). I listed it at 314k, and immediately there was a flood of interest. It's understandable, because this is a really unique mid-century modern home with lots of original and era-authentic features. I showed the home 26 times over the weekend, and 72 hours later, had 4 asking+ offers in hand. I put all 4 of those agents on notice to submit a "highest and best" offer, and again, all 4 submitted a new, higher offer. We went under contract and everybody was excited. 

Then the dreaded news from the appraiser--a low appraisal. Perhaps one of the most frustrating things about the appraiser's report, is that he acknowledged that the home was a really unique and compelling example of its kind, but that there weren't any true apples to apples comparisons to be found on the MLS. So instead, he didn't weight at all for this factor, and instead, elected to complete the appraisal strictly as a "fungible housing unit." 

I appealed this, explaining that if there weren't apples to apples comparisons, that we should give consideration to the market demand (in my case, 4 asking+ offers in 2 1/2 days). I actually blurred out all the sensitive personal info, and forwarded the other 3 puchase contracts, as evidence of the interest, but no consideration was given to this. 

The response was only that they needed additional comps, which, as already stated, didn't really exist. 

Long story short, the house is still under contract, and we are working with the buyers to secure another source of financing. Our job is to be problem solvers and deal makers, so you can't let stuff like this defeat you. It is just frustrating that the lending industry disregards the truest measure of worth (although admittedly subjective), in favor of other subjective reasoning, with little to no consideration for market demand. 

Joan Cox
House to Home, Inc. - Denver Real Estate - 720-231-6373 - Denver, CO
Denver Real Estate - Selling One Home at a Time

Dan, appraisals have been a source of frustration, especially if a market is just going into the frenzy.   In Denver, we have seen this same activity for 4 years, and appraisers are giving credit for properties with 10+ offers and granting the value.   It took a while though.  Best of luck.

Jul 03, 2017 11:39 AM
Roy Kelley
Retired - Gaithersburg, MD

This is good information to share.

Enjoy the Independence Day holiday and have an outstanding week!

Jul 03, 2017 12:11 PM