After over twenty years away from their hometown, Joe and Lyndsey Schardein decided to move back to Louisville, Kentucky. By the time they called our Buyer Specialist, their home in New Hampshire was sale pending. Ruth found them the perfect home here in Louisville, and everything was moving along as planned.
Then came the phone call heard around the nation. “The appraisal on our New Hampshire home came in $30,000 low. It looks like we won’t be moving to Louisville after all.”
Until the real estate industry took a downward spiral, lowball appraisals were extremely rare. But after six years of falling home prices, this story has become commonplace. About one-third of Realtors reported that low appraisals had resulted in the cancellation, delay or renegotiation of real estate purchase, according to an April, 2012 survey by the National Association of Realtors (NAR).
This Is A Growing Problem Looking For An Answer
Frank Gregoire, immediate past chair of NAR’s Real Property Valuation Committee, testified before the House Financial Services Subcommittee on Insurance, Housing, and community Involvement regarding appraisal oversight.
Gregoire said that a number of issues are impacting the credible valuation of real property, including appraiser competency and local market knowledge, challenges in accurately estimating market value in stabilizing markets, and the lack of oversight and regulation of Appraisal Management Companies (AMC’S).
“Appraisers are facing undue pressure by AMCs to complete appraisals using distressed transactions as comparable sales, to deliver completed appraisal reports faster, and do a greater scope of work for a lower fee than a competing vendor,” said Gregoire. “The end result is that lenders and consumers are being underserved, and all of this is contributing to the failure to recognize positive movement in prices and values in many markets, creating an additional obstacle to the housing market recovery.”
If The Appraisal Of Your Home Comes In Low, Can It Be Challenged?
The short answer is “Yes,” but you need to be armed and ready for an uphill battle. Here are a few tips to help you:
1. Get a copy of your appraisal report. Read it over very carefully, and try to remain objective. If you find glaring errors in the report, contact your lender immediately. Since lenders are not longer able to pick up the phone and call the appraiser directly, he or she will need to go back through the management company. This will take time, so the sooner you do this, the better – especially if you are faced with a deadline looming on a sales contract.
2. Take emotion out of it. Remember that the appraiser is not the “bad guy”. Appraisers have no ax to grind and have no malicious reason to bring in a low appraisal. His or her objective is only to provide an impartial opinion of value based on raw data found. Try not to take it personally. Just fight fire with fire. Data with data.
3. Enlist some help to find some “comparables” that the appraiser may have missed. Your best resource for finding comps is your local MLS (Multiple Listing System) and public records. If you are selling your home, your Realtor should be able to help. If you are challenging a mortgage refinance, you will still want to enlist the help of a Realtor if you can. The MLS information is extremely accurate and up-to-the-minute. Public records will have limited information, but for the most part is accurate as to sales dates and sales price. Don’t rely of the public websites for comparable data; it is often very dated and inaccurate.
4. Using the extra comps, look at them objectively against your own property. This is very important. Just as the appraiser has no emotion attached to the report, you need to remain impartial.
5. The comps need to be the very best “apples-to-apples” comparisons. Don’t just throw a stack of homes at the problem as that will often backfire. Just stick to the very best ones.
6. Using appraisal guidelines, make sure each comp closed within six months if possible, and absolutely no comps over a year old.
7. Each comp needs to be in the competing area, generally speaking no further away than one mile from your property.
8. Be very similar in style, square footage, bedroom and bathroom count, age, and lot size.
9. Carefully weigh all the improvements made to each home as compared to the improvements the appraiser noted on your property. That alone could be grounds for appeal if you have made substantial improvements to your home that went unnoted.
What Are Your Chances Of Winning The Appraisal Battle?
Unless there are glaring mistakes and oversights, your best efforts may fail. By the time you get the news that the appraisal came in low, the appraisal has already been reviewed at several levels, and inconsistencies noted. So unless, after several sets of eyeballs have looked it over and missed something crucial, you need to be prepared for disappointment. Your best chance might be to find that a property has closed since the appraisal was completed that could be added to your arsenal.