Disputing a Low Appraisal to Get a Higher Home Value
This guide covers disputing a low appraisal to get a higher home value. A low home appraisal can cause all sorts of problems. If you’re buying a home, a low appraisal can cause you to lose the home if the seller isn’t willing to renegotiate a lower price with you.
A low home appraisal can force the lender to require a higher down payment from you. If you’re refinancing, a low appraisal can ruin your loan approval or increase the cost of your loan.
Not every low appraisal is correct. Sometimes, appraisers make mistakes; sometimes, you can get them to change an appraised value. In the following paragraphs, we will cover disputing a low appraisal to get a higher home value.
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How Home Appraisals Work
Appraisers can use one of three methods to create value for your property. The most common is the comparable sales method. The appraiser compares similar nearby properties that were recently sold to yours.
The number of buyers vs. sellers or demand plays a role in value. Your home’s overall condition and grade of construction.
Another method of determining the value of a subject property is the cost of the land plus improvements. This is mainly used for insurance purposes. If you buy or refinance a rental, the appraiser may use the income method and determine the property value by the income it can generate.
How Home Appraisers Determine the Value of a Property
The appraiser looks at several factors when determining the value of a subject property. The sales prices of similar, recently sold properties in the same neighborhood. The average local days-on-the-market. Recent comparable sales and local sales price trends are big factors determining the value of a property.
The appraiser will look at the square footage and the number of bedrooms and bathrooms. Amenities like fireplaces, pools, decks, landscaping, bonus rooms, and garages with be taken into consideration by the home appraiser.
Home improvements have been made since the date of purchase. The lot size and views compared to other homes in the neighborhood. Neighborhood zoning restrictions. A home’s uniqueness: Note that uniqueness is not always good! A complete appraisal report can run over 20 pages.
How an Appraiser Determines Value of Subject Property
You can go through these factors one by one. A report normally shows the features of your “comps,” the similar homes to which yours is being compared. And you’ll see adjustments. For instance, if your neighbor has a “superior” view and sold for $500,000, but your view is “lesser,” you might see a -$50,000 adjustment on your value.
To dispute a home appraisal, you might take a photo showing your and one of your neighbor’s views. If they are essentially the same, you have a valid case. If the value is way off, the appraiser may have missing or incorrect information.
Verify the square footage, number of rooms, acreage, address, and more. Enlist the help of your real estate agent or your lender. They have lots of practice reading these reports and may spot something wrong. If there are just little differences here and there, you probably won’t have much luck disputing an appraisal.
Automated Valuation Model (AVM)
Today, consumers often rely on popular online valuation tools called AVM or automated valuation models, instead of comparable market analysis from a real estate professional. If you’re getting your valuation from an AVM, don’t expect it to match a full appraisal from a licensed professional.
AVMs give fast property value estimates. But they often differ greatly from appraised values. For instance, Zillow Zestimates are 5% to as much as 30% off!
The purpose of a home appraisal is to protect the lender. Lenders want to ensure they can get their money back in a foreclosure sale if you don’t pay them as agreed. So, they have to ensure the property value is not lower than the sales price.
Disputing a Low Appraisal to Get a Higher Home Value
If an appraisal comes in low, the lender may require a lower sales price or force you to increase your down payment. Some lenders have their own AVM systems to determine your home value.
Disputing a low appraisal can be challenging unless you have nearby recent comparable sales of similar and like properties. Ask your real estate agent to help you find more recent or better comparable sales.
This is a very rough estimate and won’t account for home upgrades and improvements you have done since the last refinance or purchase. If your lender only uses an AVM and comes up with a low value, push for a real appraisal.
How To Go About Disputing a Low Appraisal
Four circumstances can indicate an invalid appraisal. Comps, or “comparable properties,” are the biggest determiner of your home price. They should be recent sales, nearby, of similar homes to yours. And they must have sold recently — within six months at most.
A bad comp might be one in another part of town, an older sale, a very different property, or a foreclosure sale down the street that the former owners trashed before leaving.
The value may be wrong if an appraiser’s search doesn’t include all recent data. This happens more than you might think because local governments don’t immediately record home sales publicly. Contact your lender if you know about a recent sale that your appraiser did not include.
Omitted Improvements
Before coming to your property, appraisers check your home’s public record. That includes your home’s most recent sale price, number of bedrooms and bathrooms, lot size, etc. This is the same information that AVMs use.
Using an AVM can save an appraiser time, but if the public record is incomplete or the appraiser isn’t paying close attention, he or she may omit key improvements you’ve made.
If you’re refinancing, you can inform the appraiser of your improvements. But if you’re purchasing, that’s information the seller or the seller’s agent may have to provide.
Disputing a Low Appraiser With Outside Appraisers
Neither you nor your lender get to choose the appraiser for your home. That’s a law enacted to ensure appraiser impartiality. But it also allows less-than-great appraisers to jump into an appraisal management system and claim jobs as they appear. Whether they are qualified to take those jobs or not.
Some appraisers will drive 100 miles or more to complete a home appraisal (and charge for the drive!). When your appraiser is unfamiliar with your neighborhood, he or she relies more heavily on data from public records and less on local knowledge.
This means homes in improving communities may not get the value they deserve. Desirable amenities may be overlooked. For instance, in-ground hot tubs and fireplaces in a ski community may get high value, but an outside appraiser won’t know that. If you feel that your appraiser didn’t understand your neighborhood, this can be grounds for an appeal. Be sure to notify your lender as soon as you know of the issue.
Disputing a Low Appraiser Due To Human Error
Appraisers are human! Review your home appraisal and check for human errors. Some common errors include incorrect square footage, lot size measurements, and the wrong number of bedrooms and bathrooms. Not only are errors possible, there may be subjective factors that hurt you. The appraiser may loathe cement siding or huge garages, which could subtract from your final value.
If purchasing, ensure that your contract protects you by stating that the transaction can be terminated if the home doesn’t appraise at or above the sales price.
Forgetting features like finished basements, fireplaces, patios, and assigned parking spaces can happen where it will lower the property value. You have grounds for an appeal when your appraiser makes an error. Be prepared to show evidence of the mistake. If your loan is a VA loan, you can submit a VA POST request.
How to Avoid a Low Appraisal
You could have a poor appraisal if your appraiser has no local knowledge. If you’re refinancing, you don’t have to allow an outside appraiser access to your home and can refuse his or her services. When you get a request to open up your house for an appraiser, investigate. Get the physical address of his or her office. Tell the lender that you want a new appraiser if it isn’t local.
Check with sites like Yelp to see other client experiences. Look for records of any complaints against your appraiser by checking with your state real estate division. Tell the lender to send someone else if this person isn’t stellar.
Once you have an appointment with the appraiser, ensure your property is as clean, attractive, and uncluttered as possible. Provide easy access to all rooms, the garage, and any special features you want noted. If you have completed improvements, a list of them and their costs (with receipts if you have them) is very helpful.
Negotiations Between Home Buyers And Sellers
If your appraisal comes in low and you are the buyer, you might get a lower price if the seller is motivated and the value isn’t too much lower. If you know of a home that just sold that would reflect well on your home’s value, you can give the appraiser that address. Don’t bother if it’s just a list price; sales prices matter.
But some sellers will resist, and if the appraisal is wrong, you can’t blame them. You can choose to pay full price, especially if you know that the sales price is fair. But you might have to make a bigger down payment to keep your loan approval.
For instance, you planned to put $50,000 down on a $250,000 property and finance 80% of the purchase price ($200,000). But if it appraises for $240,000, an 80% loan is only $192,000. If you still pay $250,000, you must pay $58,000 to get an 80% loan. You might be able to ask the seller to carry a second mortgage for the difference.
Options for Disputing a Low Appraisal
If your appraiser refuses to make changes, you may be able to ask for (and pay for) a second appraisal. Don’t do this unless your lender is willing to use the higher value. If your current lender or appraiser is unwilling to budge, your final option is to start over with a new lender and appraisal.
Consider filing a complaint if it’s obvious that the appraiser did poor work. He or she may be dropped from the lender’s list of approved providers. Don’t bother with the hassle and expense unless you can verify with an industry expert that the first appraisal was faulty.
Check your home value with a few online AVMs and maybe get a Broker Price Opinion (BPO). A BPO is a kind of mini-appraisal performed by a real estate broker licensed to do them. Restarting your loan may delay your closing. But a bad appraisal may deny it altogether.
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