HELP MY APPRAISAL STINKS
Appraisers Sometimes Make Mistakes
By definition, a mortgage is a loan using real property or home as collateral. It makes sense, then, that a lender will want to know what your home is actually worth before it agrees to approve your mortgage loan. Ultimately, the value of your home will determine for what mortgage programs you are eligible (e.g.; FHA mortgage, jumbo mortgage); and, what mortgage rate you should receive. Lenders rely on home appraisers to determine a home’s “official” value. Appraisers are trained professionals who certify the value of homes for lenders. Appraisers produce “appraisals”, required with all home purchase loans and refinance loans (save for the government-backed streamlined refinance loans). Sometimes, an appraiser finds the value of a property to be less than what’s need to “make the deal go.”
With a home purchase, this may mean that the home appraises for less than the home’s contracted purchase price. On a refinance loan, it may mean that the home appears to have insufficient equity to meet mortgage standards. When your appraisal falls short of expected value, as a buyer or refinancing household, what options do you have? The good news is that you have several. This article explains how appraisers value your property, where you may find errors that can be challenged, and what to do when you’re certain the appraiser has made a mistake (which can happen!).
How Does An Appraiser Determine Home Value?
In residential mortgage lending, an appraiser must be an expert in all property types, including single-family homes, 2-unit homes, 3-4 unit homes, condominiums, co-ops, and unique properties of various sorts. Appraisers are professionals and trained. It’s their job to provide objective valuations of real property. In order to assign a value to a given home, appraisers use a combination of public and private information available about a property; and information gathered from you, the party to the transaction.
Assigned a value to home can be complex — especially in neighborhoods where the homes aren’t “cookie-cutter”. A good appraiser will review statistics and blend it with its professional know-how to properly appraise your home.
Just some of the valuation factors an appraiser will consider include:
The sales prices of similar, recently-sold properties
The average time required for homes in the neighborhood to sell
Price trends of homes in the neighborhood
The balance of buyers and sellers of homes in the neighborhood
A home’s overall condition and grade of construction
A home’s traits, including bedrooms, bathrooms, and features
Home improvements made since the date of purchase
A home’s lot size relative to other homes in the neighborhood
The home’s zoning
A home’s uniqueness (and “unique” is often a negative)
A completed appraisal report cover a lot of material and can run 20 pages or longer. This leaves room for error. As a home buyer or refinancing household, it’s often smart to review an appraiser’s finished product to look for errors, omissions, and inconsistencies. There’s a process by which you can have your appraisal “fixed”.
Yes, You Can Appeal A Home Appraisal
Despite using standard procedures and formulas to find a home’s value, an appraisal is still somewhat subjective; the appraiser’s opinion plays big role. There are four ways by which an appraiser’s opinion can affect your home valuation. Each is grounds for an appeal, if you’re able to provide support to an argument. If your loan is a VA loan, you can submit a VA POST request. For everyone else, the advice below should be of help.
When the appraiser uses outdated “comps”
The recent sale prices of other homes similar to yours is the largest factor in your appraisal. These similar homes are often called “comps”, short for “comparable properties”. An example of a comparable home would be the home across the street with the same number of bedrooms and bathrooms as your home; and with a similar number of rooms and square footage. A buyer of your home may also consider purchasing this very-similar home across the street. A non-comparable home would be the home next door which features one less bedroom, two fewer bathrooms, and which has considerably less square footage. This home is not a reasonable replacement. An appraiser will search home sales records to find the sold price of comparable homes to yours. If that search is incomplete, or doesn’t include all recent data, the appraiser may reach a false conclusion on the value of your home. This happens frequently, in fact, because local governments don’t immediately record home sales to public record. If you’re aware of a recent sale that your appraiser neglected to include, notify your lender. You can challenge an appraisal that uses outdated comparable sales, and ask for a higher valuattion. An experienced real estate agent can help you find more recent comparable sales.
When the appraiser omits home improvements
Appraisers work hard and try to be as prepared as possible before arriving on-site for an inspection. Part of this preparation includes researching your home among public records. The data from public record includes your home’s most recent sale price, the number of bedrooms and bathrooms in your home, and a few other data points which an appraiser can use to generate an range of expected values for your home.
This process is known as an automated valuation models (AVM). The AVM is an “appraisal” without actually coming to your home; the on-site is then used to confirm what the appraiser has already learned online. Performing automated appraisals can save an appraiser time, but if public record is incomplete, or if the appraiser isn’t paying close attention, your home’s appraisal may omit key improvements that you’ve made. For example, if you’re replaced carpeting in your home with hardwood floors, your appraiser wouldn’t know to account for that. Or, if you’ve remodeled your kitchen extensively, that would likely be missed, too. Be on-site when the appraiser is conducting an appraisal. Then, review the final appraisal for any missed work.
When the appraiser doesn’t know the local area
The appraisal industry recently adopted reforms known as the Home Valuation Code of Conduct (HVCC). The reform has been largely good for homeowners and lenders, but it introduced a measure of cost-cutting which sometimes has appraisers working neighborhoods with which they’re unfamiliar. Sometimes, appraisers drove 100 miles or more to complete a home appraisal. When your appraiser is unfamiliar with your neighborhood, the subjective nature of an appraisal takes a backseat to data from public record.
This means that homes in an expanding neighborhood may not get the value they deserve; or, that homes with high-value amenities may be overlooked. If you feel that your appraiser doesn’t understand your neighborhood, this can be grounds for an appeal. Be sure to notify your lender as soon as you’re aware of the issue.
When the lender makes a mistake
Appraisers are human and humans make mistakes. Therefore, it’s a good idea to review your home appraisal and check for errors. Some common errors include incorrect square footage and lot size measurements; mis-listing the number of bedrooms and bathrooms; and, omitting features such as fireplaces and patios and assigned parking spaces. You have ground for an appeal when your appraiser makes an error. Be prepared to show evidence of the mistake.
My Appraiser Won’t Correct The Appraisal
There are times when you’ll request an update to your appraisal and your request will be turned down. That’s okay, too. If you’re sure the appraiser made an error, there is a way forward. Remember: appraisals are part of the home approval process, the appraisal belongs to the lender, and the lender is not allowed to commission a second appraisal just because the first one was “bad”.
As the mortgage borrower you still have control.
When your appraiser won’t fix your appraisal and your lender can’t help out, consider taking your business to another mortgage lender and re-applying for a loan. You will start a new mortgage application with rates adjusted to current mortgage rates, and you will be required to pay for a new home appraisal. However, you may also get the home valuation required to get your mortgage approved. Restarting your loan may delay your closing, but without a good appraisal, you won’t likely close at all.