Disputing a Low Appraisal to Get Higher Home Value

This article covers how to appeal a low  home appraisal when applying for a mortgage

A low home appraisal can cause all sorts of problems. If you’re buying a home, a low appraisal can cause you to lose the home if the seller isn’t willing to renegotiate a lower price with you. Or it can force the lender to require a higher down payment from you. If you’re refinancing, a low appraisal can ruin your loan approval or increase the cost of your loan.

But not every low appraisal is correct. Sometimes appraisers make mistakes, and sometimes you can get them to change an appraised value.

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How Home Appraisals Work

What are the obstacles to a dispute over a low home valuation

Appraisers can use one of three different methods to come up with a value for your property.

  • The most common is the comparable sales method. The appraiser compares  similar nearby properties that were recently sold to yours.
  • Another method is the cost of the land plus improvements. This is mainly used for insurance purposes.
  • If you buy or refinance a rental, the appraiser may use the income method and determine the property value by the amount of income it can generate.

The appraiser looks at these and other factors:

  1. The sales prices of similar, recently-sold properties in the same neighborhood
  2. The average local days-on-the-market
  3. Local sales price trends
  4. The number of buyers vs sellers
  5. Your home’s overall condition and grade of construction
  6. Number of bedrooms and bathrooms
  7. Amenities like fireplaces, pools, decks, landscaping, bonus rooms, and garages
  8. Home improvements made since the date of purchase
  9. The lot size and views compared to other homes in the neighborhood
  10. Neighborhood zoning restrictions
  11. A home’s uniqueness (note that uniqueness is not always a good thing!)

A complete appraisal report can run over 20 pages. Not only are errors possible; there may be subjective factors that hurt you. The appraiser may loathe cement siding or huge garages and that could subtract from your final value.

Reading an Appraisal

You can go through these factors one by one. A report normally shows the features of your “comps,” the similar homes to which yours is being compared. And you’ll see adjustments. For instance, if your neighbor has a “superior” view and sold for $500,000, but your view is “lesser,” you might see a -$50,000 adjustment on your value. To dispute that, you might take a photo showing your view and one of your neighbor’s view. If they are essentially the same, you have a valid case.

If the value is wayyyy off, the appraiser may have missing or incorrect information. Verify the square footage, number of rooms, acreage, address, and more. Enlist the help of your real estate agent or your lender. They have lots of practice reading these reports and may spot something wrong.

If there are just little differences here and there, you probably won’t have much luck disputing an appraisal.

Related: Appraisal Issues During the Buying Process

Automated Valuation Model (AVM)

Today, consumers often rely on popular online valuation tools called AVM or automated valuation models, instead of comparable market analysis from a real estate professional. If you’re getting your valuation from an AVM, don’t expect it to match a full appraisal from a licensed professional.

AVMs give fast property value estimates. But they often differ greatly from appraised values. For instance, Zillow Zestimates have been found to be 5% to as much as 30% off!

The purpose of a home appraisal is to protect the lender. Lenders want to make sure that they can get their money back in a foreclosure sale if you don’t pay them as agreed. So they have to be sure that the property value is not lower than the sales price. If an appraisal comes in low, the lender may require a lower sales price, or it may force you to increase your down payment.

Some lenders have their own AVM systems they use to come up with your home value. Obviously, this is a very rough estimate and won’t account for home upgrades and improvements you have done since the last refinance or purchase. If your lender only uses an AVM and comes up with a low value, push for a real appraisal.

How to Dispute a Low Appraisal

What are the steps in the low grade dispute?

There are four circumstances that can indicate an invalid appraisal.

Outdated “Comps”

Comps, or “comparable properties” are the biggest determiner of your home price. They should be recent sales, nearby, of similar homes to yours. And they must have sold recently — within six months at most.

A bad comp might be one in another part of town, or from an older sale,  a very different property, or a foreclosure sale down the street that the formers owners trashed before leaving.

If an appraiser’s search doesn’t include all recent data, the value may be wrong. This happens more than you might think, because local governments don’t immediately record home sales publicly. If know about a recent sale that your appraiser did not include, contact your lender.

Ask your real estate agent to help you find more recent or better comparable sales.

Omitted Improvements

Before coming out to your property, appraisers check your home’s public record. That includes your home’s most recent sale price, number of bedrooms and bathrooms, lot size, etc. This is the same information that AVMs use.

Using an AVM can save an appraiser time, but if the public record is incomplete, or if the appraiser isn’t paying close attention, he or she may omit key improvements that you’ve made.

If you’re refinancing, you can make the appraiser aware of your improvements. But if you’re purchasing, that’s information the seller or the seller’s agent may have to provide.

Related: Mortgage Rate Predictions by the Experts

Outside Appraisers

Neither you nor your lender get to choose the appraiser for your home. That’s a law enacted to ensure appraiser impartiality. But it also allows less-than-great appraisers to jump into an appraisal management system and claim jobs as they appear. Whether they are qualified to take those jobs or not.

Some appraisers will drive 100 miles or more to complete a home appraisal (and charge for the drive!). When your appraiser is unfamiliar with your neighborhood, he or she relies more heavily on data from public records and less on local knowledge.

This means that homes in improving communities may not get the value they deserve. Desirable amenities may be overlooked. For instance, in a ski community, in-ground hot tubs and fireplaces may get high value, but an outside appraiser won’t know that.

If you feel that your appraiser didn’t understand your neighborhood, this can be grounds for an appeal. Be sure to notify your lender as soon as you’re aware of the issue.

Human Error

Appraisers are human! Review your home appraisal and check for human errors.

Some common errors include incorrect square footage and lot size measurements, wrong number of bedrooms and bathrooms, and forgetting features like finished basements, fireplaces, patios and assigned parking spaces.

You have grounds for an appeal when your appraiser makes an error. Be prepared to show evidence of the mistake.

If your loan is a VA loan, you can submit a VA POST request.

How to Avoid a Low Appraisal

You could end up with a poor appraisal if your appraiser has no local knowledge. If you’re refinancing, you don’t have to allow an outside appraiser access to your home and you can refuse his or her services.

When you get a request to open up your house for an appraiser, investigate. Get the physical address of his or her office. If it isn’t local, tell the lender that you want a new appraiser.

Check with sites like Yelp to see other client experiences. Look for records of any complaints filed against your appraiser by checking with your state real estate division. If this person isn’t stellar, tell the lender to send someone else.

Once you have an appointment with the appraiser, make sure your property is clean, attractive, and uncluttered as possible. Provide easy access to all rooms, the garage, and especially any special features that you want noted. If you have completed improvements, a list of them them their costs (with receipts if you have them) is very helpful.

And if you know of a home that just sold that would reflect well on your own home’s value, you can give the appraiser that address. Don’t bother if it’s just a list price; sales prices are what matter.

Related: How to Buy a Home With No or Low Down Payment

Negotiations Between Home Buyers And Sellers

If your appraisal comes in low and you are the buyer, you might get a lower price if the seller is motivated and the value isn’t too much lower.

But some sellers will resist, and if the appraisal is wrong you can’t blame them. You can choose to pay full price. Especially if you know that sales price is fair. But you might have to make a bigger down payment to keep your loan approval.

For instance, you planned to put $50,000 down on a $250,000 property and finance 80% of the purchase price ($200,000). But if it appraises for $240,000, an 80% loan is only $192,000. If you still pay $250,000, you’ll have to put down $58,000 to get an 80% loan.

You might be able to ask the seller to  carry a second mortgage for the difference.

The Other Option: Start Over

Recent And Comparable Sales Transactions

If your appraiser refuses to make changes, you may be able to ask for (and pay for) a second appraisal. Don’t do this unless your lender is willing to use the higher value.

Your final option, if your current lender and/or appraiser are not willing to budge, is to start over with a new lender and appraisal.

Don’t bother with the hassle and expense unless you can verify with an industry expert that the first appraisal was faulty. Check your home value with a few online AVMs and maybe get a Broker Price Opinion (BPO). A BPO is kind of a mini-appraisal performed by a real estate broker licensed to do them.

Consider filing a complaint if it’s obvious that the appraiser did poor work. He or she may be dropped from the lender’s list of approved providers.

Restarting your loan may delay your closing. But a bad appraisal may deny it altogether.

If purchasing, make sure that your contract protects you by stating that the transaction can be terminated if the home doesn’t appraise at, or above, the sales price.

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