February 3rd, 2016 7:27 AM by Jackie A. Graves, President
Here's a nightmare scenario for anyone trying to sell a home: a
deal-killing appraisal that shows your house isn't worth nearly as much as your
This is not an uncommon
Each month, about one of every
10 real estate agents reports that low appraisals scuttled a home sale,
according to the National Association of Realtors.
A low appraisal can lead to a
canceled sales contract because lenders won't approve mortgages for more than
the home's value.
But if you believe your home is
worth more than the appraisal shows, what should you do?
Most lenders have a process for
challenging an appraisal, says Bob Lear, a real estate appraiser for more than
two decades. But you must be prepared to point out mistakes the appraiser made
in comparing other properties or by missing new or upgraded features in your
Our 4 smart moves won't
guarantee the outcome you're looking for, but they should help protect against
After all, an appraisal is just
the appraiser's opinion.
move 1. Give the appraiser a reason to
change his opinion.
Too many people just contact the appraiser and say "you're
wrong," says Lear, owner of Lear-Annoni Appraisals in Eden Prairie,
That tactic won't yield a new
To get a second look, "you
have to provide me different data — data that is different than the data I
used," he says.
Read your copy of the home
appraisal, then consider whether you can offer the single most persuasive item:
A "comp," in the real
estate world, is a point of comparison.
The best way to know what a
home is worth, the argument goes, is to compare it to a similar home that has
recently changed hands. Adjust the price up or down to compensate for
differences, and you'll know your home's value.
If a similar home in your
neighborhood recently sold for more than your appraisal, especially if the sale
took place after the appraisal, bring that to your bank's attention.
move 2. Point out poor or missing
Look at the comps the appraiser
used. He or she might not know all the homes in your neighborhood that have
The appraiser will only find
comps if they're listed in the Multiple Listing Service.
If a home changed hands without
ever being listed, it's similar to your home and it sold for more than the
appraiser said your home is worth, then that's new information the bank and
appraiser should see.
Short sales and foreclosures
can also throw off appraisals of similar homes.
When you bring this to the
appraiser's attention, you might say that this comp was a distressed sale or
that, yes, the house down the street sold for less, but it had no plumbing.
It's tough to find comps for
unique properties. If your property is unlike the others in its neighborhood,
look at the comps the appraiser used. Are there other comps that are arguably
Lear recalls a duplex in
Shorewood, Minnesota: "We did the best comps we could, but the bank needed
a comp with the same square footage and the same bedroom number. Those didn't
exist in Shorewood, so the bank accepted comps from a different suburb."
That could be grounds to
dispute an appraisal.
If properties rarely change
hands in your neighborhood, that's another potential problem.
Comps should be properties that
have sold within the last 90 days. If your appraiser used older comps, you may
be able to show that the market has changed.
move 3. Highlight the changes you've
made to your property.
An appraiser might not have
noticed your home's new or upgraded features: a new kitchen, redone or
additional bathrooms, updated decor, updated roof, new furnace, updated central
air conditioning, finished basement or new fireplaces.
Point them out.
Richard L. Borges II, immediate
past president of the Appraisal Institute, a Chicago-based industry group, says
appraisers often find it handy to have the owner present during a review of the
home because it lets them ask questions and get them answered right away: How
old is your roof? How often do you have to have your septic system serviced?
If you aren't at the home
during the walk-through, leave a letter detailing all you've done to your home.
If, after the appraisal comes
back, you see that the appraiser missed some of the changes you've made, let
the lender know.
Remember, though, that
"the cost of new and upgraded home features rarely equals value, unless
something is at the end of its life," Lear says. "I appraised a home
for a gentleman who was transferred six months after he bought the home. He
remodeled the kitchen during that six-month period and sold the house for what
he paid for it, plus the entire cost of the new kitchen. The old kitchen was
from the 1960s, and the house was in an area that was becoming very
move 4. Seek a second opinion.
You can attempt to sway your
lender to revise the appraisal by getting one on your own.
Lear remembers being hired by a
homeowner seeking a second opinion on the appraisal of his home in Edina, a
Lear found problems with the
home's appraisal and sent his notes to his client's bank, seeking to have the
initial appraiser issue a revision or for the bank to order a new appraisal.
"That appraiser compared
the client's home to six homes in Minneapolis, St. Louis Park and a completely
different neighborhood in Edina," Lear says. "Not one of those is
near this house. These are terrible comps."
Getting another opinion doesn't
guarantee success, but it worked for this homeowner, Lear says.
In the end, you may or may not
be able to get the value changed. The appraiser has to answer to underwriters,
so they're not very willing to change values.
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