So you’ve searched and searched and you’ve found the perfect real estate deal. The inspection came back clear and now you’re simply waiting for the lender to sign off on your loan. Soon, you get a solemn call from your loan officer…”The property appraisal was low. I’m sorry, we can’t do your loan for you.”
This scenario plays out somewhere every day. If you haven’t had it happen to you, then you haven’t purchased enough property yet. Don’t worry. It will happen. Just wait.
After the last market crash, Congress in all their infinite wisdom (none of whom were lenders in their past lives) passed sweeping legislation to “protect” consumers from the big bad banks. Unfortunately for us, they didn’t have a clue of how their legislation would not only fail to achieve the desired results, but it would bog down the process and create a whole new category of problems for real estate buyers and sellers alike.
In an effort to eliminate valuation fraud, lenders that fall under big brother’s new policies now have to order all appraisals from third-party vendors. Of course, these huge third-party companies had great lobbyists, but that’s another story. These vendors now would pay appraisers a small pittance to practice their craft forcing many good appraisers out of the industry leaving many weaker appraisers in the pool. These large vendors would collect more from the borrowers and pass on less to the appraisers. The appraisal jobs would then be given to appraisers in a rotation, regardless of the appraiser’s quality and familiarity in the market.
It is now not uncommon for appraisal vending companies to bypass appraisers that specialize in a particular neighborhood in favor of an appraiser that might have to drive some distance to the property simply because they were the next person up in the rotation.
That being said, there are ways that you can influence the value of the property simply by doing your homework up front. You can also appeal the process after the appraisal has been performed. Here are eight things that you can do to get the appropriate valuation on your property.
- Request a copy of the appraisal and go over it with a fine-tooth comb. Have a real estate pro assist you. Identify the areas where you feel the appraisal is not accurate.
- Ask your lender to explain to you their appeal process. Many lenders are going to simply gloss over an appeal, but you will need to provide concrete documentation as to why the appraisal is wrong.
- Provide the appraiser with a list of upgrades that your home has that others in the neighborhood do not have. Don’t expect a dollar-for-dollar bump in the value of your property, but you have to give an appraiser a solid reason to give your property the credit that it deserves.
- Pull your own comparable properties and provide that list to the appraiser when they arrive to perform the appraisal. The appraiser should have done their homework prior to their visit, but you need to be sure that they are using the appropriate comparables and that they are not using “uncomparable comparables” to set the subject home’s value.
- Point out specific reasons why they should change their value. Don’t just say that the home is worth more because grandma used to live there. Point out that the main comparable that the appraiser used was not waterfront or that they bypassed neighborhood comparables in favor of one in a different, less desirable neighborhood.
- Check your county’s website to ensure that any past work that you’ve had done on the property was properly permitted. Appraisers should be looking at permits for upgrades that you’ve done to the property. You need to make sure you’ve gotten the credit you deserve.
- Make sure your real estate agent is communicating with the appraiser and that they are providing the appraiser with the upgrade list as well as they comps that they used to arrive at the value that they placed on the property. It’s even better if they are present to meet the appraiser when they perform the appraisal inspection.
- Get a second opinion from another appraiser. Here you might have to cough up some cash, but another licensed appraiser might be able to sway a lender or the vendor management company that they are wrong.
One thing to keep in mind in this entire process is that no one likes to be told they are wrong. Appraisers, Lenders, and Vendor management companies are notoriously territorial and they hate it when they are being “shown up.” They are also all very conservative and fear making a mistake on a value that is higher than it should be, so they will tend to cautiously value a property down a bit lower to ensure that they don’t take on liability. It has, however, been my experience that if you approach them in a kind and courteous manner, treat them like professionals, and have your ducks in a row, you might be able to get them to change their mind.