One of the worst feelings a seller (and agent) can experience during a real estate transaction is the gut-punch delivered by a low appraisal. I have worked through this situation both as a realtor and homeowner, and I can attest that neither “side” has the easier task to get back on track after this setback.
As an agent, I can think of two or three separate occasions in which the appraisal from the buyer’s lender came back lower than the purchase price. Each time, I took on the role of moderator for the sellers because it was my duty to ensure they didn’t have to lower the price and lose a lot of money as a result of the appraisal. And of course, as an agent I didn’t want the sale to fall through and potentially lose my clients too. Often, we were able to make some strategic fixes and adjustments. As a result, we managed to bridge the gap between the appraisal value and purchase price.
On another occasion, I experienced a low appraisal as a homeowner, or at least as a very involved and interested party. Shortly before my husband and I got married and bought our current home, he had to sell his home in another town. He had lived there for about two years. He had gotten a great deal when he purchased the home, and made some nice updates while he was there. When the appraisal value came back at about $20K less than the buyers’ purchase price, we were stunned. That’s a truly significant difference! We were planning to use the money from the sale for a down payment on a home in Evansville. Imagine our fear of losing twenty thousand dollars in our budget. It was quite troubling and stressful.
We were much younger and less savvy at that point, so I deeply appreciated the advice the listing agent provided for us. In this post, I’d like to share a few ways you can help “right the wrong” of a low appraisal. I make no guarantees, as I am not a professional appraiser. In addition, I want to be clear that I do not know how the process works in all markets. That said, these are some steps homeowners and agents can take to get that value increased. It’s a discouraging situation, but doing as much as possible to fight back is well worth the time and effort.
Request a copy of the appraisal report. If you have the report in-hand, you can see exactly what criteria was checked to determine the value of the home. The report should also provide the comparable homes the appraiser referenced as well. Be sure to double check all the measurements for square feet and the numbers of bedrooms and bathrooms to ensure accuracy. If you see anything that doesn’t look right in the report, tell your agent and the lender immediately.
Go over the comps with a fine-tooth comb. Appraisers use comparable homes as a significant factor in determining your home’s value. Look carefully at the size, age, condition, location, lot size, and amenities for your home and the comps. Also look at when each home sold because market values tend to fluctuate even over just six months. This is really the best tool you have to use as proof that your home is worth more. What does your property have that others don’t? Why is it worth more in this sale?
Compile data on improvements and updates. This is something my husband and I did for his home when we dealt with the low appraisal. What updates have you made to the home that have increased its value? List everything, even small updates like improvements to the landscaping. It all matters in this situation. It’s even more helpful if you can provide receipts or invoices for work that was done to prove cost added into appreciation of the home. Be thorough and as detailed as possible in this task.
Get a second opinion. I worked for a high-producing agent that questioned any appraisal that didn’t value the home at the current purchase price. I was stunned by how well this tactic worked. She started by questioning the appraiser’s knowledge of the current market, specifically in the neighborhood where our listing was located. She went through much of the report over the phone with the appraiser, asking him or her to explain why something was docked or why they valued this or that a certain way. Then she proceeded to ask the appraiser if he or she was local or sent in by the lender. Most of the time, my boss told the appraiser she was calling the lender to demand another appraisal. Sometimes that first appraiser agreed to make changes or go back out to the property to take another look. My recommendation is to have your realtor tackle this step, especially if he or she is gutsy and tactful enough to make the appraiser question the report. It’s a bit risky but can be tremendously effective.
Whatever you decide to do, fight for your home’s value and the work and care you’ve put into it. Do not settle for a low appraisal, whether you’re refinancing or selling. Oh, and in case you were wondering how my husband’s situation resolved… that list and a second opinion worked! We provided a typed, detailed rundown of everything he had done to improve the home throughout his two years as owner. Fortunately, his agent worked well with the buyer’s agent and they worked together to take the case to the lender. The outcome was an appraisal value of just $1,000 less than the purchase price.
While you must be objective and understand why the appraiser is adjusting value a certain way, remember that you still have some power as a homeowner and can challenge a report you deem inaccurate. It’s worth every penny!