Lately, I've heard about quite a few home appraisals that have come in at less than expected value - a frustrating development that can stop a real estate sale in its tracks. I'll tell you how I was able to revive one of these deals.
First, let me explain the process. After a contract is signed and the buyer applies for a mortgage, the bank or mortgage lender hires an appraiser to value the property and write up an appraisal based upon an examination of the condition of the home and comparable local sales (comps).
Due to federal law, the bank or mortgage lender must hire an independent appraisal management service. The bank has no control over the appraisal and cannot communicate directly with the appraiser. Most times appraisers will write up the report and then refer back to the contract of sale to make sure they're not over appraising or undervaluing the property. Here's where problems can arise.
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I recently had an issue with an appraiser who valued the house my clients were in contract to buy, at a price that was quite a bit lower than the agreed-upon sales price. The sellers were asking $485,000 and we had agreed on $463,500. The appraisal came in at only $440,000. The appraiser had based the value on five comparable sales in the area. But he failed to consider three other sales in the area that were well above $500,000, all of which were close to the same square footage, lot size, and were in similar condition.
Admittedly, it's a difficult process to get an appraiser to change the value on the report - but not impossible. In this case, I disputed the report, sent the appraiser the other higher-value comps and went over them closely with him. (I had sold two of those houses). I pointed out the similarities and was able to convince him to increase the appraised value to $455,000.
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This isn't an every-day occurrence because changing a value makes the appraiser look bad to the independent appraisal company (his boss), and the bank. In the end, we negotiated the difference with the sellers and agreed on $459,000.
My point is that an appraisal is purely subjective. It's just one person's opinion. If you had ten appraisers look at the same house you'd get ten different values. The appraisal report actually includes this statement:
"The purpose of this summary appraisal report is to provide the lender/client with an accurate, and adequately supported, opinion of the market value of the subject property." Go figure!
Call me if you have any comments or questions 914.804.6098 email to marcianokw@gmail.com.
