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How to challenge a low appraisal (a format to use)

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How do you go about challenging a low appraisal? While you might feel frustrated beyond belief, it’s important to not make an emotional argument, but rather share facts and market data in a systematic way to support your case. The following document is a format I developed for my investor clients who kept asking me what they can do to deal with bad appraisals.

Before launching into a rebuttal, you first ought to make sure to ask the lender what their process is for challening an appraisal so you know you are spending your time wisely. Additionally, read through some of my tips for challening a low appraisal.

Check out the document below or VIEW OR DOWNLOAD HERE. Feel free to use or adapt according to your needs. If you need a Word document of this file, contact me.

I hope this is helpful. Let me know if you have any questions.

UPDATE: I wrote a helpful piece on BiggerPockets.com about how to challenge a low appraisal. I included a downloadable format to use that evolves the format above just a bit. It’s free. Go get it HERE.

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A tale of three appraisals on one house

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What do you get when you have three appraisers appraise one house? It sounds like the start to a cheesy real estate joke, but unfortunately there’s nothing funny about this scenario.

A home owner hired me recently for some value perspective after there were three separate appraisals done on his house for sale. Since there was a huge discrepancy between the values and contract price also, the seller wanted to find out what his house was really worth. So he hired me to review the appraisals and talk with him about the market. And yes, I have permission to share this story.

Background: His house in the Sacramento area listed at $210,000 and had 7 offers right around $210,000 (conventional, FHA & VA), and a cash offer at $198,000.  Some offers asked for 1-3% concessions back to the buyer, but others did not. The first accepted offer was $210,000 and the second was $213,000.

three separate appraisals

1Appraisal #1: This appraisal came in at $192,000. The appraiser made an adjustment for a declining market and a hefty adjustment downward for being located on a feeder street too. These adjustments essentially knocked off about $10,000 in value (and they weren’t supported in my opinion). All things considered, this appraisal looked low, especially in light of a pending sale the appraiser used in the report that subsequently closed at $195,000 (and was 200 square feet smaller with less upgrades – located on the same street).

2Appraisal #2: After the first buyer moved on, a second buyer came along. The contract price was $213,000 and the appraisal came in right at contract. All things considered, it just seemed the appraiser was maybe reaching for the contract price on this one. Still, it’s amazing to see a $21,000 difference between the first two appraisals.

3Appraisal #3: This was a review appraisal from the second buyer’s lender, and the value came in at $185,000. The reviewer did an exterior inspection of the property and the “comps” were simply not comparable. There is nothing similar about dirty distressed sales and the subject as a clean and upgraded home. Just because something has sold nearby does not mean it is a “comp”. This appraisal was good for nothing not the highest quality I’ve seen. The buyer was actually willing to pay the difference in cash between the contract price and a potentially lower appraised value, but the review coming back at $185,000 was a huge amount for the buyer to consider paying. This reviewer was probably paid very little for the job he did, yet his appraisal ended up playing a huge role in the transaction.

Any lessons we can learn? Situations like this aren’t pretty, but there are still some important take-aways to remember in this market:

  1. Appraisers, do a better job.
  2. Agents, be ready to answer questions and provide market insight to appraisers when they ask you questions about one of your sales or listings. In light of low inventory, it’s critical to obtain insight from real estate agents – especially on listings. Also, here are some tips for talking with appraisers in an HVCC world.
  3. Borrowers and owners, if you’ve at the receiving end of a bad appraisal, ask the lender what their process is for doing an appraisal rebuttal or challenge, and then follow their guidelines. You may need to offer new comparable sales, market data or possibly obtain a new appraisal. If the lender is not willing to work with the new data, and you feel strongly the original appraisal is not accurate, you may need to switch lenders. Keep in mind the appraisal sticks with the property for 120 days if it is an FHA loan, but that’s not the case with a conventional loan. It may be worthwhile to consult with an appraiser who is a market specialist in your area also. The appraiser cannot advocate for your cause, but can provide unbiased market research for you. Here are some tips for how to challenge a low appraisal.
  4. Let’s remember that market value and price are not always the same thing – even when inventory is low. Despite multiple offers, we won’t always see properties appraise at or above contract price.
  5. This market is not easy for anyone to interpret, yet it’s easy to blame various parties for a deal not working out – particularly appraisers. In the case above, the shoddy appraisal work was clearly to blame, yet that’s not always the case when a transaction goes south. All I’m saying is let’s give blame where it is due and when it is due, but be objective in our critique.

Any questions, stories or insight? Why do you think there is such a difference in appraised value in situations like this? I’d love to hear your comments below.

If you have any questions or Sacramento area real estate appraisal or property tax appeal needs, contact me by phone 916-595-3735, email, Twitter, subscribe to posts by email or “like” my page on Facebook

Is it fishy when the appraised value comes in at the sales price?

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Does it seem a bit suspect when the appraised value comes in at the sales price? Maybe you’ve felt that way before. Should you be concerned? Yes and no.

Yes. If the appraiser has deliberately met the sales price in an attempt to make the deal work, it is suspect and you should be concerned. If the house is really worth more or less, it’s not fair to have the appraisal hastily completed to help make a transaction move forward.

No. The sales price can be a good indication of market value. The agreement between a buyer and seller can very well reflect market value for a property and fall within the range of values in a neighborhood. If the buyer and seller (and others) offered on the property and all came in at a similar level close to the contract price, chances are that might be a pretty decent indication of how the market sees the property. For example, if the sales price was $225,000 and the range of values for competitive sales looks to be $220,000 to $230,000, and there is no good reason for the subject value to be reconciled at the higher or lower end of the range, then $225,000 could very well be a rational selection for market value. It is very reasonable for the appraiser to make such a conclusion and not suspect at all so long as there is support for that conclusion. In short, when the appraised value equals the sales price, the appraiser might just be saying, “Yep, that looks good based on all data. The buyer and seller did a good job working out a price.”

What do you think?

If you have any questions, or real estate appraisal or property tax appeal needs in the Greater Sacramento Region, contact Lundquist Appraisal by phone 916-595-3735, email, Facebook, Twitter or subscribe to posts by email.