If you’ve never had a low appraisal on one of your deals, then you haven’t been in real estate long. This is something that happens to frequently, especially in today’s market. With limited inventories and pricing all over the place it is our job to now when an appraisal needs to be challenged.
Appraisal challenges continue to increase as the market struggles; 10 percent of the nation’s Realtors said they had sales canceled because appraisals came in below the prices buyers agreed to pay, according to a recent survey by the National Association of Realtors. Another 15 percent said contracts were renegotiated after appraisals came in below contract; sellers dropped prices or buyers put up more cash. 33 percent of home builders said they lost sales because of low appraisals, according to an August survey by the National Association of Home Builders. That was up from 26 percent in a 2009 survey. If you’re on the receiving end of a low appraisal, how do you challenge it?
Think like an appraiser
If you want to challenge an appraisal then think and act like an appraiser. That starts with understanding how to measure a home, what constitutes living area, positives and negatives…. A few things to know
-Always meet the appraiser at the property
-Have some comparables and give them a copy
-Learn about how and why adjustments are made to comparables
– No improvement returns dollar for dollar
– Appraisers measure the outside of homes; some use lasers, some tapes, some wheel, some round…others don’t. No two appraisers will measure a home the same way
– Condition and maintenance level matter, good condition is expected, poor condition will be detailed
If your home was listed for 100K and failed to sell, the appraiser will see that. Don’t expect a 100K appraisal since the market has already told you otherwise
– If your home has been on the market for a longer than usual time, the appraiser will see that and wonder why
Their estimate of value is based upon comparable sold homes (comps) in your area that meet certain criteria. Ideally, this includes:
– Closed within six months! Although some want 90 days
– Be located within the defined competing area, typically under a mile
– Be physically similar to your home – style, bedroom count, size, age, lot, location
– They should be a “reasonable alternative purchase” to your home; the comparables should be functionally equivalent to yours with similar appeal. If your home were offered for sale, the comps would be other purchase options to it.
Once you are ready contact the lender and ask to challenge the report. It’s called an appraisal rebuttal. Once rebuttal is ordered it can take between 3-5 days for a resolution. Know the odds are against you, but I will tell you I have won my share of challenges. So if you feel the report doesn’t add up, go ahead and challenge it. Good luck!