Don't let an appraisal stymie your home sale
Here's what sellers and buyers can do if a home is valued lower than the price they agreed upon in a contract.
© Jeffrey Coolidge/Getty Images
I am selling my home and buying another. Purchase agreements have been hammered out, inspections have been done and issues that were uncovered are being addressed, and the closing date has been set. There's just one last hurdle we have to clear before I'm ready to say with certainty that we are moving: the appraisal.
Over the past three months, real-estate appraisals have held back more than one-third of home sales, according to a survey by the National Association of Realtors. Of the real-estate agents surveyed, 9% said a contract was delayed because an appraisal came in below the negotiated price, 15% said a contract was renegotiated to a lower price, and 11% said a contract was canceled as a result of a low valuation. (Bing: How long does the average closing take?)
A low valuation can scuttle a deal if the buyers are relying on financing from a bank to purchase a home. Banks require appraisals to verify that a home's sale price is supported by its market value and won't issue a loan for more than the appraised value. However, there are several things buyers and sellers can do if an appraisal is lower than the price they agreed on, says Walter Molony, a spokesman for the National Association of Realtors. "You don't have to sit there and silently take what happens," he says.
Look for errors in the appraisal report that might have led to a low valuation. Make sure the appraiser recorded the correct square footage of the property, the right number of rooms and any upgrades that might boost the value of your home.
- On our blog, 'Listed': Existing-home sales at highest level in 3 years
Ask the appraiser to reconsider his or her evaluation if you think it does not accurately reflect the value of your property. For example, the appraiser might have used short sales and foreclosures when making comparisons for valuation purposes, and the low prices of these properties could have hurt your home's appraisal.
Article continues below
Ask for a second appraisal, especially if the first one was done by an out-of-town appraiser who wasn't familiar with the market.
Pay for your own appraisal and, if the valuation is higher, use it to contest the first appraisal. To find a certified appraiser, visit the Appraisal Institute's website.
- MSN Money: Should you buy a house now?
Try to renegotiate the price if you don't have the cash to cover the difference between what the bank is willing to lend and the negotiated price.
Ask for another appraisal if the seller won't agree to a lower price. Ask the new appraiser not to include any foreclosures or short sales in his list of comparable properties.
- Facebook users: 'Like' MSN Real Estate today
Cancel the contract if it was contingent upon your ability to secure a mortgage and if you aren't able to get a mortgage for the agreed-upon percentage of the purchase price because of the low valuation.
Years ago, USPAP was revised to prevent "scratching out a value and writing in a new one." When the appraisal is done it's DONE until there is new information available in the market.
The worse the banking crisis gets, the thicker the skulls seem to get. An appraiser MUST revisit the property and re-appraise it if new information is to be used in the report. Sometimes that is new sales that suggest a bump upwards or even downwards.
Reconsiderations are dinosaurs, they're simply not allowed by USPAP anymore. Many AMC's still hold on with this wilfully ignorant idea because it's inconvenient. If the lender wants a new value then order a new appraisal, which USPAP has demanded for years.
I could contest a whole lot of things in this article. A bad appraisal isn't about a value not coming in where the buyer and seller want it to come in. A bad appraisal is one that doesn't have appropriate market research, appraiser knowledge and full disclosure about property, terms of sale, market conditions, etc.
Secondly it isn't always the "appraiser's value" that brings the allowed mortgage amount down. It is the lender.' I recently completed an appraisal on an immaculate 18 month old property, upgraded from builder basic, located in a development with rehabbed and flipped 18 month old foreclosure properties as well as new first time sales. I used both types of match model properties as comparables and the lender discounted my appraisal $40K. Why, because of the lender's secondary analysis of my city wide market conditions, not my market segment conditions. It is their right to do that whether I like it or not. It's the lender's right to do that whether the borrower likes it or not. It's the lender's money that's being lent out.
TELLING the appraiser what to use and not use for information, for comparable sales, what photos to take or not take all affects appraiser independence, and in the case of an appraisal for a federally backed loan, I believe it is a federal "no no" involving the FBI. At least that's what appraisers are told.
Don't "TELL" the appraiser how to do their job. Give them information, in writing. Keep copies. If the appraiser uses comparables you don't believe are comparable, then find your own and submit them to the underwriter. If your market is 50% or more foreclosures and short sales, that is your market. The appraiser has to deal with it and so do the borrower and the lender.
If you want to use other comparables, remember, those comparables MUST meet the same requirements the appraiser had to use:
- be within the subject property's neighborhood market segment
- be within FNMA guidelines for similarity to subject
- sales within the last 90 days prior to subject inspection
- provide a range of adjusted and unadjusted sales prices no greater than 20%, AND provide explanation and analysis for any adjustments outside of guidelines, and
- make sure you have the history of those sales which is provided to the lender.
I'm currently working on a project where the lender will not accept a value that is not bracketed by actual sales in the neighborhood market segment in the prior 12 months. I can give a higher or low value that is not bracketed. I probably won't because the value of the property is within that range. But the Listing Agent allowed his client to list the property equal to the highest sale 14 months ago, and that sale was not in the neighborhood or similar to his property in location, access or amenity.
The buyer chose to meet that list price. The buyer chooses the lender. The buyer should know the terms the lender is giving to the appraiser to work with before making a complaint; even before paying loan fees. Isn't transparency in lending something that the new laws were supposed to bring about???
Quit complaining about the lowest guy on the totem pole and look at who is actually making decisions, making the rules, and making $$$ whether or not the loan goes through. It's still the lender and the title company.
After years of "drive by" appraisals, in 2008, when we wanted to refi to complete our reno, the appraisal came in as though we had done nothing, in spite of major work in progress, including wall board paint, new closet, heating system, and windows. The crew was actually working the day the appraiser showed up, the heating system was already halfway done. The bank cancelled the closing and would not accept a delay for a new appraisal. My husband had been with them for 25 years.
Meanwhile, the next year, the county appraised the house for 80k more than the bank.
Personally, I think every bank executive should be sitting in a jail cell. They are the biggest bunch of crooks going.
I wonder how many people really understand that there is a difference between "improving a property" and "Maintaining a property"
Maintaining a property to acceptable standards ie. Roof, AC, market acceptable decor is the cost of living in a property for years. You don't necessarily get that money back.
I am a certified appraiser and would NEVER use short sales or forclosures in an appraisal evaluation.
Is it legal to hold payment to the Appraiser until the appraisal is approved by the owner and buyer?????
The last female appraiser I had was terrible. I told her she could not take any pictures of my antique china closets and she did any way.. I notified her in writing, if I had any breaks-ins or a robbery I would give the police her name and address as she had violated my directions about taking pictures of my antiques and pictures of my entire house and had my address and phone number.
The appraisal came in very low. The Agent refused to provide any assistance, saying he had no control over who the appraiser was??????
We have owned our home for 20 YEARS in Florida and put it on the market last year, we paid $110,000 when we had it built not including 20K for a pool and most recently had the shower tile totally redone, put in wood/tile floors, corian countertop, resurfaced pool deck along with many other improvements...we had an offer on our home for $163,000, inspection done, minor issues, then came the appraisal, came in $33,000 below selling price...and his notation on the inspection...NO IMPROVEMENTS IN 15 YEARS...he must have been on drugs...didn't ask one question as to what improvements had been done. So, of course the buyer then wants to buy the house for $130,000. Our realtor was going to submit a rebuttal regarding the appraisal but of course the buyer figures why should I pay $163 when it is appraised at $130. So of course the sale is off the table. Bottom line...the house appreciated approximately "0" DOLLARS in 20 years...isn't that special! Why do the foreclosed values have to reflect my value...I didn't create the housing dilemma!
The VA appraisers are the worst. We received several detailed errors on the written appraisal, they came from out of the local area, and they valued our home at a whopping $100k below the second appraisal I received from a bank, one month later. We we showed them additional comp's in the local area, of course, not wanting to admit error, they de-valued the Comps all the way down to their appraised value.
Bottom Line -CROOKS hands down, would love to take this to an attorney and sue these guys for sheer negligence.
I think having appraisals is a broken business. When you have a low appraisal what does your lender suggest ? "Let's order a NEW appraisal". Who pays for this second appraisal, you do ! There was a time when a lender could use a known cometent appraisal, now lenders have to choose from a pool and if that individual isn't reliable the home buyer suffers.
The more things change, the more they stay the same!
The present recession was caused, in part, by over-inflated home values caused by many factors...all summed up in one......greed. I find it amusing that realtors blame appraisers for over and under valuing properties and never themselves for encouraging someone to purchase something at above market value.
Realtors are still overpricing homes to an unknowledgeable buying public and then blame the appraiser when the deal don't make. If 35% of the sales were renegotiated or cancelled, it would seem the properties just might have been overpriced?
It is not the responsibility of the appraiser to make the deal work, but to render a credible opinion of the market value of the property as of a specific date.
Please.....Take a good hard look at any low appraisal you receive. This article does not have correct information in it. I am a seller and went through a low biased appraisal that was filled with errors and value flawed last year.
There are some excellent appraisers - most tend to be private - and then there are the appraisers who work for bank appraisal firms like Rels. The Banks put pressure on them to come in low because they wish to enter the deal with as much equity as possible and the more that they can absorb of your equity, the better they feel the deal is. Additionally, you are subject to their appraiser's perspective - the perspective of someone who works for the appraisal firm that was the lowest bidder to the bank to get their business. If you look into it, this is known throughout. Read a few stories of the millions posted on the internet.
Specifically in my case, the appraisal was a mess. Some of the comps used in my appraisal were 14 years older, one sold just to get rid of it and my agent was also the agent for that property; she had informed the appraiser in advance and he ignored her. There were adjustments to increase the value of the comps where there should not have been; location, sight, etc. This was verified by the county appraiser. The county appraiser was easily able to cite errors when it was presented. The banks appraiser never checked the county records; my property is graded one level below new construction. The appraiser just graded everything average and yet noted the effective age of the home 3 - 5 years; the home is ten years old. One would not be possible with the other. Comp photos were lifted from MRIS, which is allowed, but the appraiser is required to drive the comps. One of the comps was a completely different house, different color, different lot and the appraiser had no idea - the builder had just used a stock photo - because he had never driven the comps; I did. He left off my upgrades because he did not have knowledge or information on them and he did not want to take the time - high energy saving solar film complete installation, cross hipped roof versus standard gable, etc. I live in a subdivision of colonials and this was a custom built rambler all on one floor, one of the largest lots and a prime location. The appraiser was from an area a little south of here, but claimed to be an appraiser for the area.
Needless to say, I have filed an official complaint with the state and they are investigating. And oh by the way, when I looked into it, I found that there had been other complaints against this appraiser. My complaint has been referred to the displinary board the last I heard and is still in progress.
So when you receive a low appraisal, you really need to review it carefully. The seller is in the best position to do this, if the buyer is from out of the area, but they have to be willing to share it with you. If you get the opportunity to reveiw it, then talk to the county appraiser. Look at and drive the comps if necessary, etc. Read the appraisal line by line. While there are some good private appraisers, the appraisers who work for the banks are pressured for low value, paid very little and move very fast, broad stroking and making mistakes. Private appraisers know this and it is typically a primary reason that they will not work for the big banks.
This will continue until re-regulation, to work out the flaws in the system, is addressed and put into place. Whether you are a buyer or a seller, the best advice I can offer is to please take a good hard look at any low appraisal you get. Look at it line by line and you may be surprised at what has been served up to you. I certainly was. Thank you.
Many people do not realize how the appraisal process works. Everything in the appraisal report has to be backed up by public records. Black and white. An appraiser cannot ignore sales in the neighborhood and go elsewhere to find sales that make your purchase work. The underwriters will be all over the appraiser. They check to see other sales in the area and you have to have VERY GOOD reason not to use them. If short sales an foreclosures are prominate in your area, they have to be factored in as a market influence. The rules are very strict and the consequences of not following them ar great, including losing license, fines and jail. If someone suggests other comps I will look at them but unless they are better than the ones I have used (which is rare) I won't budge. The biggest mistake I find is that people think what they pay for something, like a kitchen renovation, is what it adds to the value. That's just not so. When you put your house on the market, make your agent take you to all the houses for sale in your 1 mile radius and compare. Be honest, not emotional, about your comparison and that might help ground you to a realistic expectation of what price to list your home. It is a very competitive market and buyers are very aware of what is out there. And remember, when people get sales concessions for closing costs, it automatically comes off the sales price of the comps in the appraisal lowering the recorded sales price. If the sales price is $150,000 with $5K in losing costs, the real sales price is $145,000 for the purpose of the appraisal.
Certified Residential Appraiser, CGRA