Did you try to get a loan or sell a property but had appraisal problems? I hear all the time from real estate agents, home owners and investors about bad appraisals that killed their deals. What can you do about a “low” appraisal? Honestly, not much sometimes, but you can at least write a well-reasoned cordial letter to the lender to ask the appraiser to reconsider the value in the report based on support you offer in a brief letter. I’ve seen some clients have success with the points I explain in the video below when they legitimately do have a “low” appraisal. When I say “low” too, I’m not talking about a value that is lower than the sales price because we all know market value and price are not the same thing. I really have in mind an appraisal that is truly botched and plain bad. By the way, you can read a blog post about challenging low appraisals in case the video is not working for you.
I’d like to hear about your situation with a “low” appraisal and what you did about it. How did the appraisal impact your deal?
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Finger Pointing: There are many recent articles lately about how appraisers are to blame for the housing crisis. There is certainly some blame to accept if an appraiser misstated the market, and I am not minimizing that at all, but it’s important to keep in mind that the appraiser is absolutely not always to blame. During the housing boom there was certainly mortgage fraud, but let’s remember that prices really did rise to ridiculous levels, buyers were willing to pay those prices, and lenders had extremely loose standards where almost anyone could purchase a home – whether they could afford it or not. For instance, I had a friend who bought in the Natomas area of Sacramento and didn’t have to show any verification of income to borrow more than $400,000. Maybe the appraisal on his loan in 2004 was bad for some reason, but one thing for sure is that there need not be an automatic finger pointed at the appraiser in an instance like this.
Appraisal Reviews: The article quotes a loan officer saying he used to have so few appraisals reviewed, but nowadays the bulk of his appraisals have to be formally reviewed by the lender at a cost of $125 a pop to the Borrower. I’m not saying there aren’t really bad appraisals out there, but had lending guidelines in 2005 been what they are today, this loan officer may have experienced just as many appraisal reviews then as he does now. Lenders are requiring more of Borrowers these days, and even more work from appraisers too. If you are in the lending industry or in the process of obtaining a loan, I’d be curious to hear your perspective.
Low Fees: The article discusses the “middleman” and how appraisers are hired by neutral third-parties nowadays called Appraisal Management Companies aka “AMCs” (for loan appraisals only – not other types of appraisals). I think the article did a good job describing this process. There are some solid AMCs out there who treat their appraisers well and pay them decently too, but there are also some really bad ones. Here is an email I received a couple weeks ago verbatim from one of the “bad guys”. This was a blast email that went out to numerous appraisers for a property in a semi-rural area with VERY limited market data. I have never worked for this company because of their low fees. Based on their email, do you sense they are interested in obtaining a quality appraisal report?
Has a low appraisal destroyed one of your deals this year? We’ve been hearing so much about how real estate appraisers are “killing escrows” ever since the