The Best Way Of Going About Disputing A Low Appraisal

This BLOG On Disputing A Low Appraisal Was UPDATE On March 26, 2017

There are instances where home appraisals comes in at a much lower value than expected.

  • A low home value than expected will most likely delay the mortgage process.
  • Disputing a low appraisal is the first thing that comes in everyone’s mind.
  • Unfortunately, disputing a low appraisal is not as easy as it seems and before going about disputing a low appraisal, things need to be thought through.
  • It is understandable when an appraisal is 5% or less within the target value but when an appraisal comes in 10% or more below the stated value, something is definitely wrong.
  • Realtors are professionals and most listing real estate agents will price the property accordingly prior to listing it on the MLS.

How Home Appraisals Are Done

Appraisals are largely based on prices recently paid for comparable local properties.  Over the past decade, finding “comps” that accurately reflect values has been a challenge as values rose quickly during the boom and fell just as fast during the bust  Discounts paid for foreclosures and short sales have created a dual price structure between “normal” and distress sales.  .

When pricing offers today many buyers rely popular online valuation tools, called AVM or automated valuation models, instead of a comparable market analysis from a real estate professional.

Automated Valuation Model

  • AVMs give fast property value estimates but they often differ greatly from appraised values because they are determined by algorithms using available local price data, not actual inspections of the property. 
  • During this time of record low home values, it’s no wonder that more and more appraisals are coming in below prices that buyers and sellers have agreed on.

It may seem ironic that buyers would want the homes they want to buy to appraise for as much or more than they are willing to pay.  Remember, the purpose of the appraisal is not to help you get a better price, but to protect your lender should, heaven forbid, you default.  The lender wants assurance that your home will be worth enough to recoup their investment.

Even if you have a great job, sterling credit, an adequate down payment and money in the bank, you lender will still want a conservative appraisal.  In light of losses they have taken on the millions of foreclosures in recent years and the tough times many banks have had on Wall Street, lenders are taking no chances these days.  They are more interested in protecting themselves from a loss than they are in making you a loan.

Here Are Steps In Disputing A Low Appraisal

There are ways for a home purchase to still go through either by Disputing A Low Appraisal or other means.

  • Renegotiate the purchase contract and have the home sellers to come down to the appraised value.
  • By far, this is the easiest solution, especially if your appraisal comes in less than 10 percent of the contract price. 
  • Obviously, a lower price is a great idea for the buyer, but why would a seller go along?  In July, 2011 the average home in America took about 88 days to sell.  Demand is soft and time is money.  
  • Sellers particularly if they are selling to buy another home, could be in a real bind and are forced to back out and they have to put the house on the market again.  After all, there is no guarantee that if you walk away, the seller won’t receive a low or even lower appraisal from the next buyer’s lender.
  • Today, many buyers are offering incentives to sellers, such as payment of some or all closing costs. 
  • Lowering the price might be a cheaper option for the seller in order to get the deal done on time.
  • Sometimes a bird in the hand is best
  • Ask the seller to offer to carry a second mortgage for the difference. 
  • This solution doesn’t cost the seller anything but the buyer incurs greater debt. If the buyer really wants the home but cannot come up with the difference in cash, making payments or a lump sum payment at a later date to the seller is an option. 
  • After the escrow closes, sellers often retain the right to discount the second mortgage, sell it for less than face value to an investor
  • Is the contract sales price a fair assessment of the property value based on a well-prepared comparable market analysis (CMA) from your real estate agent as opposed to an online AVM?
  • Was the appraisal done by an appraisal management company that may have used a less than expert or out-of-town appraiser?
  • Disputing A Low Appraisal may sound a little aggressive but you might be the victim of a poorly prepared appraisal.   Do some research first and go to war if you have the ammunition.
  • Buyers have the right to get a copy of the appraisal from the lender and to find out who did it. 
  • What is the appraiser’s reputation? 
  • Have any complaints been filed with your state appraisal licensing agency? 
  • Where is the appraiser based? Did they perform an appraisal in a housing market that they may not know well?
  • Did the appraiser have adequate information about the subject property.  
  • Was the appraisal was conducted by an out-of-town appraiser unfamiliar with your market?
  • Buyers have every right to demand a new appraisal when Disputing A Low Appraisal.
  • What comparables did they use? 
  • Ask  the seller’s agent to put together a list of recent comparable sales that justify the agreed-to sales price.
  • Submit that list to the underwriter Disputing A Low Appraisal and ask for a review of the appraisal.
  • Also, ask the agents to call the listing agents of pending sales to try to find out the actual sales price of those properties.
  • Listing agents do not have to disclose the sales price, but many are happy to help out because they could find themselves in the same situation. 
  • Pending sales are more current and are not closed, so the original appraiser would not have access to them.

Data Is Key To Disputing An Appraisal Successfully

  • Ask the lender for a new appraisal. 
  • Should you find that you have a good case that the appraisal wasn’t fair or accurate, ask your lender for a new appraisal, which you may be charged for.
  • Another strategy is to get two additional, unbiased appraisals and use the average of all three to arrive at a fair price.
  • This is a risky strategy, in light of the fact that another appraisal might not come in higher than your first; it might even be lower if values have fallen.
  • Depending on how convincing your argument is, your lender has the ability to override the appraisal estimate, which is unlikely, or to order a new appraisal, which is more likely.
  • If a new appraisal is ordered, talk with your agent about somehow splitting the cost with the seller.
  • Perhaps the listing agent and selling agent will split the fee so the buyer does not have to incur additional costs associated with the transaction.  Appraisals cost around $400 or so.
  • Get your own, independent appraisal. 
  • If you order your own appraisal and your loan is an FHA loan, ask the lender for a list of approved appraisers.
  • Usually the bank will review your appraisal and ask the previous appraiser if they agree or disagree with the newly submitted one.
  • If the first appraiser disputes your appraisal, the bank may request a third appraisal done by another appraiser, or they may just reject your appraisal.

However, if the first appraiser agrees with the disputes you present, they may adjust their original appraisal and you may get a better price.

If these tactics fail and you cannot make up the shortfall in the appraised value, you may find yourself moving on.  If so, be sure that you were protected by a contingency clause in the sales contract, stating that the transaction can be terminated if the home doesn’t appraise at, or above, the sales price

The information contained on Gustan Cho Associates website is for informational purposes only and is not an advertisement for products offered by The Gustan Cho Team @ Gustan Cho Associates or its affiliates. The views and opinions expressed herein are those of the author and/or guest writers of Gustan Cho Associates Mortgage & Real Estate Information Resource Center website and do not reflect the policy of Gustan Cho Associates Lenders Network, its officers, subsidiaries, parent, or affiliates.

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