How To Handle A Low Appraisal

Lately we've seen several appraisers invoking the Tidewater Initiative regarding VA appraisals.  Tough for a listing agent to deal with this, and something that has surprised the agents whenever this initiative is invoked.

Nice article Amanda! For what it is worth, with the current appraisal industry guidelines, the REALTOR and the local lender have no input as to whom is going to do the appraisal. While most appraisers are thorough and diligent, it is not fair to fault them when they use a comp that is only 2 blocks away from the subject, and for all intents and purposes is physically very similar. However, if the appraiser is not regularly doing appraisals in that area and perhaps lives 30-40 miles away, they may not be aware that the neighborhood 2 blocks away is in an entirely different school district, and unfortunately a district with sub standard ratings. This has an adverse effect on the outcome of the subject's value. If their is an appraisal contingency we routinely add a sentence that in the event the appraisal does not hit the contract price, the buyers or their agent will provide us with a copy of the appraisal. We can quickly ascertain if there is an "inappropriate" comp. If there is, then we have grounds to discuss a review appraisal with the appraiser. If not, then we move on to the choices in Amanda's article.

There is another possible option, admittedly a long shot...appeal the appraisal. 

One of  your anonymous commenters said it isn't the appraiser's job to justify the price. Interesting. Back when I was in broker clases I asked the instructor about that and he said it IS the appraiser's job to justify the price - if it is anywhere close. This is, after all, what a buyer is willing to pay.

I do agree with everyone about appealing the appraisal - but only if you as an agent have run the comps and honestly believe the appraisal is wrong.

Just a note to the anonymous commenters who have been rude: Go back to Facebook.

Here in the Rain we are respectful of each other. We may have differing opinions, but we don't consider it cool to say things like "These are obvious solutions. Seriously? This is the headline story?" or "That is a pretty lame answer to a low appraisal."

Good post.  Because the appraisers come from different areas per lender rules and do not know the local market we can have serious issues with low appraisals.  I am always happy for an appraiser to call me when they have questions about an local area where I list.  Come to think of it, I have not had a call for a while!

HI Amanda, We teach a class on this to our new agents. Much of the problem is the house wasn't priced correctly and the seller was reaching. i thankfully have not had this happen often in the last few years.

Also I will share that to always have a list of the most recent solds in the neighborhood and give it to the Appraiser. Sometimes banks sends appraiser who are out of town appraisers who do not know the area as well. And if they don't know the area they can use the wrong comps. Using wrong comps will more than likely end up sabatoging the deal. 

we Real Estate Professionals hate working months on a deal only to see the deal fall through. Great post on "How to handle a low appraisal. #Howtohandlealowappraisal

Hi Amanda S. Davidson - I have two point to make. First these anonomous comments mean absolutely nothing to me. They could all be from the same person. If you can't take the time to put your name to it, why should I read it? JMHO....

I have had a bunch of listings close this year and none came in below the agreed upon price. In other words, the contingency clause could not be used.  

Why? First of all, I meet the appraiser at the home, I provide them with the comps I have done and the amenities in the home. Teach them about the area, if they are not familiar with it.

Secondly, I do my very best to evaluate the property based on comps available. This way I can justify my positioning of the property.  I will and have gone back to the appraiser and asked for the comps that person used and present the comps I use to see if there is a disconnect. I also make sure that upgrades and amenities  have been accounted for in the appraisal. Basically, I want verifiable details of how the appraiser came up with the analysis. 

If there is no room for negotiation on the part of the appraiser, I ask the seller if they want to get another appraisal.  

Additional point:

If the property is so unusual that you have to go out of the area to get any reasonable comp, I might ask the seller to have an appraisal done, so that we have a solid base for a future negotiation.  If the seller decides to price the home higher, I tamp down the expectations and agree with them on a strategy to position the house appropriately for the market. 

I have not had the issue of disappointment but if I did.....

it would be because the seller didn't listen or didn't want to hear what I told them. 

As you pointed out, there are many options when an appraisal comes in low. Seller can come down in price, buyer can pay the difference, seller/buyer can split or buyer can walk. This is after any potential re-look at appraisal. A low appraisal is often NOT a death knell.

I have a personal relationship with 3 appraisers in my area, you can just imagine what they say about this issue. 

Great post!  All good points after receiving an appraisal as buyers and sellers have to compromise.  But it's always best to ask gatekeeper questions before they arrive as appealing an appraisal is SUPER difficult as an appraiser would have to admit a mistake, not likely to happen. 

Having hosted appraiser classes 3 different times, 2 day courses, I can say that much of the responsibility actually lies with the listing agent.  The listing agent is the first gate-keeper in the transaction as they allow access. 

The first question a listing agent should ask relates to geographical competence. Have they appraised in this area before.  It might not make a difference in small towns, but in our "town" of over 400 square miles it makes a big difference!

The second question is have they appraised homes in this price range?  That will tell you if they have appraised luxury, if indeed you have a higher priced home or something different than the average home.

If the home has solar panels or energy efficient features, this is just plain competency.  If they haven't appraised homes with either and don't know what the PVValue Tool is, reject them till you find a "green qualified" appraiser.  Of course this is my specialty and in my courses!  

Dealing with a low appraisal can be tricky. I had one last year when everyone--both agents, sellers, buyers and the lending bank thought the appraisal was way too low--significantly under list price!  Appraisers do not like to be questioned. Still, in a market where so many buyers are going over the asking price--having an accurate appraisal is key.

I had a low appraisal for an FHA buyer this spring.  The listing agent was reaching by trying to claim that the upstairs/attic was finished space.  It had no flooring, no heat or cooling, and the drywall seams were taped, but not finished.  The appraisal came in at $6000 below the agreed price.  Note also, our agreed price was $9000 off the listing price!  So the agent was $15,000 off in the value.  My buyers were forced to walk away when the seller refused to lower the price to meet the appraisal and the buyers were unable to come up with that much extra to buy the house.  The house came back on the market and is still there.  The agent corrected the square footage and removed the FHA/VA availability, and ultimately lowered the price by $5000, still $1000 above the APPRAISED value.  It has been six months and only recently, the agent changed the picture of the house to one without snow.  You cannot make this stuff up.  In the meantime, my buyers found a much better home that was also less money!  They closed a couple of weeks ago.  It all worked out in the end.

Another good one filled with information I didn't know. Thanks for sharing.