Sometimes a Realtor or homeowner may feel frustrated (even furious) because of a low appraisal. They, of course, mean that the appraisers final opinion of value was reported to the bank below the contracted sales price or below the homeowners value estimate on a refinance. What remedy is available to the Realtor or homeowner in these cases?

My first and perhaps strongest advice is to SLOW DOWN. Dont rush to judgment before you get all the information and think things through. It is natural for anyone myself included to get angry when we feel we are being harmed by the faults of another. Instinctively we want to contact them immediately and vent our frustrations. To succumb to this temptation with your appraiser or any other person in life will tend to hinder, rather than help, your cause. In the same way we instinctively seek to berate one who harms us, it is instinctive to become defensive when we are attacked. You want your appraiser to look at facts in a logical and reasonable manner, so it is important to approach him/her in that same way.

So, maybe we dont immediately call the jerk what do we do? First, you might ask the lender to ask the appraiser if there is more room in the appraisal. The appraiser reconciles a final opinion of value from a range of value indicators (further explained below). Perhaps the extra amount you were expecting is reasonably within the range of value, and can be supported rather easily. If not, secondly, you should request a copy of the appraisal from the bank. When you get it study it not just for an error to pounce on, but looking for both good and bad in the report. Has a clear mistake been made, in say, square footage, age, or lot size, which can account for the disparity in value estimates? Appraisers are human, and certainly are not immune to mistakes especially when busy. Calmly pointing out such a correctable error to the appraiser may quickly resolve your problem without increasing anyones blood pressure.

If the appraisers assessment of the house seems accurate, the value dispute clearly rests in the valuation process most likely in the sales comparison approach to value. Understand that an appraisal report typically (but not always) consists of three approaches to arriving at an opinion of value a cost approach, a sales comparison approach and an income approach (omitted unless the property is a rental unit). While the cost approach is considered in final reconciliation, the weight of the appraisal generally rests in the sales comparison. The value of your property is determined much more by what similar homes in the area are selling for, rather than what its construction cost. Moreover, the bank is more interested in what it can sell for. In the event of foreclosure, the cost to re-build the house is of little meaning to them thats an issue for the insurance company  to be concerned with. [See prior PRESS RELEASE on Cost versus Value]

With the appraisal report in hand, take a look at the comparable sales used by the appraiser. Notice how similar the houses are in location, size, age, etc. Read the comments the appraiser has provided underneath the sales comparison section perhaps he/she explains that truly comparable sales data was scarce. Typically an appraiser must limit the sales search to 12 months back a federal guideline that may greatly restrict the appraisers options, particularly if the subject property is unique. So even if you find the comparable sales selected to be less than ideal choices, you still need more information. What other alternatives are available? What good will it likely do you to call the appraiser and complain that the comparable houses selected dont even look like my house or are too far away or too dissimilar in some aspect, when you dont even know what alternatives were available. Find out first. Inquire with a Realtor or the MLS office or public records, to see what comparable sales are available. You will either find that the appraiser is right he/she chose the best sales among a less than sterling set of choices; or you will find a few recent sales that indicate a higher value. Be attentive to stay within the appraisers guidelines when possible. Choose sales within the past 12 months that are fairly similar in age, size, etc.

Another possibility is that you are familiar with the interior of the comparable sales. The appraiser often is not afforded this opportunity, and must rely upon Realtors for verification or prior inspections. Unlike most appraisers, I make an effort when not overwhelmed with work  to walk through as many houses listed for sale as possible, so that I am familiar with them when I later use them as comps. But if a homeowner or Realtor is familiar with the interior of a comp, they may be able to inform the appraiser of a disparity in interior condition or quality that was not originally addressed in the appraisal.

With this reasoned ammunition in hand, contact the appraiser and ask them to consider the sales data you have gathered. Ive never heard of an appraiser who would not respect such a request. This approach may cost you some time, but it is a movement from a personal opinion to an informed opinion. Youre making an argument versus simply arguing. Everyone, including me, has a high opinion of their home it is something more valid to do the work to develop an informed opinion of value. This is the realm that an appraiser must work in. An appraisers personal opinion on a residence, whether high or low, has no bearing on the appraisal process.  

But why should you have to do this work? Well, simply put, the appraiser has done his research and developed his case for the opinion of value. Now, the burden of proof lies on the one who has a dispute with those conclusions. Indeed, there should be not only provision of alternative comp information but legitimate argument for why the comp data the appraiser has selected is inferior to the new data. Keep in mind also that one single sale does not override an abundance of data. For instance, if one house sold at a higher price, but all other area houses sold lower, one must question if that one sale should be used as the representative data. Remember, appraisers are held accountable for their conclusions of value by their peers, the lenders that send them business, and even the federal government. Understandably, a lack of convincing evidence should prompt an appraiser to lean more to the conservative side (though a contract of sale may represent a valid and recent indication of market value). Again, the point is, do your homework before you assume the appraiser didnt do his/hers. Of course, if you believe this is too much work on your part, and youre not interested in doing the appraisers job then you certainly have the option of procuring a second opinion. Only, beware, with this option you risk paying an extra fee with no guarantee that the results will be any higher. (No legitimate appraiser will guarantee a value prior to doing the work).

In summary, when you feel that your appraisal is low there are some practical steps you can take toward resolution. First, SLOW DOWN, gather your self and approach this problem in a reasonable versus an emotional manner. Second, request that the lender ask the appraisal if the range of value supports a slightly higher figure. Third, get a copy of the appraisal report and study it for errors. Fourth, if you dispute the comparable sales selected, seek out better comp data through a Realtor, MLS office, or public records; offer that information to the appraiser, and wait for a response. Fifth, if still without remedy and convinced you are right and the appraiser is wrong, get a second opinion by procuring a new appraisal.

One last quick note along the same lines. Sometimes a homeowner or Realtor who believes they received a low appraisal will point to a prior appraisal. This older appraisal may suggest either a higher value or an only slightly lower value estimate though it is from years past (whereas appreciation is expected to have substantially increased value). While it is not a bad idea to reference an old appraisal in this cause, it does not represent an end-all argument. Appraisals are relevant for a particular date. Sales data changes over time, as do value-influencing factors.  Neighborhood values can decline given certain market responses. But even if area values have remained stable to increasing, one should avoid an automatic assumption that the low appraisal is the incorrect one! Sure, we all want to believe in the high appraisal, but if an appraiser can miss a value low then one can also certainly miss one high. An appraiser is not going to change his credible opinion of value just because a former appraiser did not do their work appropriately. Give an equally critical view toward each appraisal before you place your faith in one.

As always, I hope you will consider calling on me when you need residential appraisal services in the area.

by Tim H. Medlin, CREA