What is a low appraisal?
The term low appraisal is a description used by real estate and mortgage folk when the appraisal value does not support the sales price. It has little merit. The appraisal value is the fair market value of the property. When it doesn’t support the sales price, the correct term would be “overpriced property”.
The Idiot Appraiser
Now let’s discuss that idiot appraiser. That no good, neutral, third party who’s job all day every day is to analyze markets and a multitude of other factors when arriving at a value for your home. Believe it or not, whether you’re the seller or buyer, they’re looking out for you the consumer and our economy. Appraisers are the gatekeepers of the real estate transaction intended to protect the consumers, lenders, real estate agents, loan officers and investors from their short term rapacity.
There is a lot of misinformation out there that the appraiser may not be local and therefore not understand your neighborhood. That is not the case. Certified appraiser’s are experienced and educated to study neighborhood characteristics and trends based on market data.
While an appraisal is an “opinion” of value, appraisers follow reasonable methodology and guidelines from Fannie Mae and lender underwriting requirements. This means that if you have two “Independent” appraisers come out to appraise your home they will arrive at value opinions within minimal variance from each other.
Appraisers are subject to massive oversight. In 2018 it’s not so common that an appraiser is blatantly fraudulent. And when that is the case they are swiftly dealt with. Mostly what we’re hearing about today is inflated appraisals (FHA 37% Inflated Appraisals) where appraiser’s push values. To put it another way, for all the “low” appraisals that come in there’s the other side where the appraiser gives in and stretches the value to support the sales price. That is the dangerous course we may already be going down.
So enough about “Super Hero” Appraisers. What do you do when your appraisal does not support the sales price. If you’re the seller you renegotiate before you lose your buyer. Or if you’re the buyer you approach the seller to reconsider the sales price. The buyer can also pay the difference in cash or find another property. There are other options regarding creative financing which is out of my wheelhouse. I still wouldn’t recommend it.
Challenge the Appraisal
Here’s what you do if you are convinced that the appraiser messed up. If you or your realtor have sales that are better than the one’s the appraiser selected, you can present them to the lender. Ask that they have the appraiser reconsider the value based on your alternate information.
The best way to do this is to list each of the appraisal sales and explain why it is not suitable. Then list your sales and explain why they are better.
Here’s an example
Original Sale 1: 321 Xyz Street -this sale is over a mile from the subject when there are many closer sales that are similar to the subject and support a higher value. (in this instance make sure your proximate sales are recent)
Original Sale 2: 456 Lmn Street -this sale is inferior in updates and lacks similar outdoor amenities to the subject when there are alternate sales similar in updates and amenities that are recent sales and proximate.
Original Sale 3: 678 Hij Street -the adjustment for guest quarters is considerably low when market data suggests a larger adjustment is needed. See market data information provided by real estate agent for this amenity
then present your alternate sales..
Alternate Sale 1: 123 Abc Street -this sale is more proximate to the subject and more recent than original sale #1, and similar in all other relevant characteristics as well.
…you get the idea.
By stating your argument for a higher value in this logical manner the lenders reviewers can check to see if your suggestions are valid and pass them on to the appraiser. The appraiser can consider your reasoning or explain further why their sales have more weight. Make sure the data you provide does indeed support a higher value. While your sale maybe closer than appraisers sale it may need adjustments for other features that may not change the final value much.
Most often the sales that the seller’s agent send back are dated over a year and unusable by the appraiser. So, keep your alternate sales within six months. It may help you to know that when selecting sales the appraiser has to follow Fannie Mae guidelines and that particular lenders underwriting requirements. The sales they select are specific in order to satisfy all of the lenders requirements like bracket the subject’s main features, are within a certain time period, etc.
Make sure they really are better sales for comparison to the subject. In my 16 years I have yet to see alternate sales for a reconsideration that are better than the ones I used. The sales are usually dated, outside the subject’s neighborhood, superior in features or amenities, etc. It gives me an indication of how the listing agent arrived at the “overpriced” value.
Hope this gives you a little insight to better understand the strange term “low appraisal”. The best option when the appraisal value does not support the sales price is to renegotiate. Lets leave the housing crisis of 2008 behind us. There is no long-term benefit to “overpriced” homes.
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