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The appraisal came in and you were disappointed. If you were buying or selling a home why would it not be valued at the sales price since you have a willing buyer and seller? If you are refinancing and the value is lower than what you owe, how can this be? We understand how frustrating it can be in these situations. Here are a few things to help you understand how appraised value is derived and some things that you can do if your appraisal is lower than expected.
Things to know and understand
Appraisers Have Many Restrictions-You must understand the appraisers are bound by many guidelines and restrictions when they perform an appraisal. FNMA has many guidelines and standards that appraisers follow. If the appraisal is for FHA or VA financing, appraisers have additional restrictions and guidelines. Appraisers are also bound by USPAP (Uniform Standards of Professional Appraisal Practice). Many lenders will place additional requirements above these in order to protect their investment. An appraiser’s work is reviewed often by other appraisers and reviewers.
Value is Market Dependent-The most common appraisal in real estate is for lending institutions. Unless a buyer is able to pay cash for a home, there will be a third party lender involved. The appraisal is owned and ordered by the lender. The lender requests a market value to securitize the loan and protect their investment. The FNMA definition of market value can be found here. When an appraisal is peformed it is a process. The appraiser will research data on your home (the subject) and the market area or neighborhood. The appraiser will find sales of homes most similar to the subject (comparables) and will compare them and make adjustments for differences between them. For information on market adjustments click here: The value of your property will be based on the current sales, typically sales within six months. Sales of homes one or two years ago will not be suitable. If there are not sales of similar homes within your market that support a higher value then it will be difficult for your home to be appraised for a higher value.
Appraisals are unbiased opinions of value-An appraiser cannot be an advocate. An opinion of value should be unbiased and appraisers cannot be influenced by the lender. That being said, there are things that you can do when the appraisal comes in lower than you anticipated.
What you can do:
Review the Appraisal: Read the report carefully. Appraisers are not perfect and as in any profession, some appraisers provide higher quality of work than others. If there are major items that are in error, such as you have a 3 car garage but the appraisal reports a 2 car garage, you have 3 bathrooms but the report shows only 2, etc. Make note of these errors.
Review the Comparables: Look at the comparables used in the appraisal to see that they are the most similar sales within your market area. Look to see if there were sales within your neighborhood of homes similar to yours that were not used.
Make a List: Write a list of items in the report that you found to be in error. Stick to the big stuff. Little items such as typos or misspellings will not make much difference in the opinion of value. Provide a list of comparables that were not used that you feel are more similar. You can send these in a rebuttal to the lender for a reconsideration. With some lenders, you can request a second appraisal but you may have to pay for it so be certain there is market support for a higher value before you proceed.
Renegotiate: It just may be that the market does not support a higher value at this time. If you are a seller you can reduce the price, if you are a buyer you can add more cash to the transaction, or perhaps the buyer and seller can both adjust the terms of sale.
We hope that this was helpful in understanding how market value is derived and what to do if your appraisal comes in lower than you anticipated. Feel free to contact us if you have further questions.
Disclaimer: All information deemed reliable but not guaranteed. The information is meant entirely for educational purposes and casual reading only and is NOT intended for any other use. This information is NOT intended to support an opinion of value for your appraisal needs or any sort of value conclusion for a loan, litigation, tax appeal or other potential real estate or non real estate purpose. If you’d like to obtain additional information or order an appraisal for your specific needs, please contact us at www.dwslaterco.com.
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