Challenging a Low Appraisal

In our last article, we discussed ways to get out ahead of the possible problem that arise if the home you’re set on buying has appraised for less that the agreed sale price. As a result, the bank is refusing to approve the loan you need to cover the cost.

Wait! Don’t give up! Have you considered challenging your appraisal?

Consider these steps toward getting your valuation raised.

Get a copy of the appraisal report.

Take a look at some of the different data points an appraiser has collected to determine the home’s value. This may include the total square footage, the age, the condition, amenities, the number of bathrooms, bedrooms, and so on. It’s certainly possible the appraiser made an error, and it doesn’t hurt to check.

Review those comps.

We’ve discussed before how comparable sales are used to determine a home’s value. These comps are used to determine what price a potential buyer can reasonably be expected to pay. But what if there aren’t enough recently sold “comps” in your area? The appraiser may have to go back in time a bit, or look a little outside of your neighborhood.

The market is ever-changing, so your home may be worth more than the comps that sold six months or a year ago. So if older comps were used, the value may not be accurate. You will need to provide better comps that show your home was undervalued to support a challenge.

Alternatively, you will want to find errors in the comps used. Maybe the appraiser said one had a pool when it didn’t. Maybe there were four bedrooms, not three. Maybe the comps were from a totally different neighborhood in a different school district.

Take a look at these important points:

• Total square footage
• Size of the lot
• Location on the block
• Condition of the home
• Age of the home
• Amenities

 

Find someone to have your back.

Does all of this talk of comps sound over your head? Find someone to help. Call a local real estate agent who is familiar with your neighborhood and has experience in the area. A real estate agent should be sufficiently prepared to help find comparable sales in the area, and have the knowledge and resources to help spot factual errors with comps as well.

Talk to another appraiser.

Some banks or lenders will not let you speak directly to the appraiser. However, that doesn’t mean you can’t talk to a certified appraiser to review the report and comps to provide his or her opinion of the work. You may even order your own appraisal if you’re confident that the value of the home should be higher. It’ll certainly cost you a fee, but it might save you time and money in the long run. You may even be able to get the seller to help out since it’s in their best interest as well.

Don’t forget to be neutral and objective.

Keep in mind that what YOU see as value may not interpret that way to others. A pool, for example, and the maintenance that comes along with it, may not be enticing to everyone. And you may love the idea of an old home having “history” behind it, but the appraiser will probably not see it that way.

Of course, you’ll need to prepare yourself for the possibility the value is what it is, and there’s simply nothing to challenge.

Before you challenge an appraisal or even start getting your ducks in a row, you should ask the lender what the process is to challenge an appraisal. You might as well not waste time – keep in mind, it’s ultimately up to the lender to reconsider.