Negotiating a Home Appraisal That Is Too Low: What Are Your Options?
A home appraisal is a crucial step in many real estate transactions, whether you're buying, selling, or refinancing. It provides an independent assessment of your property's value, which lenders use to determine the mortgage amount they're willing to offer. However, what happens if you believe the appraisal is too low? A lower-than-expected appraisal can jeopardise your plans, potentially leading to a stalled sale or unfavourable loan terms. Fortunately, you have options. This article will guide you through the steps you can take to negotiate a more accurate valuation.
Common Reasons for Low Appraisals
Before diving into negotiation strategies, it's helpful to understand why appraisals sometimes come in lower than expected. Several factors can contribute, including:
Market conditions: Appraisals are based on recent sales of comparable properties (comps). If the market is cooling down, recent sales may reflect lower prices than you anticipated.
Property condition: The appraiser will assess the condition of your home, noting any necessary repairs or upgrades. Significant deferred maintenance can negatively impact the valuation.
Limited comparable sales: In some areas, especially rural locations or those with unique properties, finding sufficient comparable sales can be challenging, leading to a less precise appraisal.
Appraiser error: While rare, appraisers can make mistakes, overlooking key features or misinterpreting data.
Subjectivity: Appraisals involve a degree of subjective judgement. Different appraisers may weigh factors differently, leading to varying valuations.
1. Reviewing the Appraisal Report for Errors
The first and most crucial step is to carefully review the appraisal report itself. Look for any factual errors or inconsistencies that could have affected the valuation. This is your opportunity to identify potential flaws in the appraiser's assessment. Don't just skim it; scrutinise every detail.
Key Areas to Examine:
Property details: Verify that the report accurately describes your property's characteristics, including square footage, number of bedrooms and bathrooms, lot size, and any special features (e.g., a swimming pool, renovated kitchen, or solar panels).
Comparable sales (comps): Pay close attention to the comparable sales used by the appraiser. Are they truly comparable to your property in terms of size, location, condition, and features? Are the sale dates recent enough to reflect current market conditions?
Adjustments: Appraisers make adjustments to the comparable sales to account for differences between those properties and your own. Review these adjustments to ensure they are reasonable and justified. For example, if a comparable property has a smaller lot, the appraiser should have made a positive adjustment to its sale price to reflect the value of your larger lot.
Calculations: Check for any mathematical errors in the calculations used to arrive at the final valuation.
Photographs: Ensure the photographs accurately depict your property and that the appraiser has correctly identified key features. If a recent renovation isn't reflected in the photos, this could be a red flag.
Common Mistakes to Avoid:
Ignoring minor discrepancies: Even seemingly small errors can add up and affect the overall valuation. Don't dismiss anything without careful consideration.
Failing to understand the adjustments: If you're unsure why an adjustment was made, research comparable sales data or consult with a real estate professional to gain a better understanding.
Getting emotional: It's natural to feel frustrated or disappointed if you disagree with the appraisal, but try to remain objective and focus on identifying factual errors.
2. Gathering Additional Supporting Documentation
If you believe the appraisal is inaccurate, gather additional documentation to support your case. This evidence will strengthen your argument when you request a reconsideration of value.
Types of Supporting Documentation:
Recent comparable sales: Find recent sales of properties that are more comparable to your home than the ones used by the appraiser. Focus on properties in your immediate neighbourhood with similar size, features, and condition. Online real estate portals and local real estate agents can be valuable resources.
Detailed list of improvements: Compile a comprehensive list of all improvements you've made to your property, including dates, costs, and any permits obtained. Include before-and-after photos if available. This documentation will demonstrate the value you've added to your home.
Contractor estimates: Obtain written estimates from licensed contractors for any necessary repairs or upgrades identified in the appraisal report. This will provide concrete evidence of the cost to address those issues.
Professional opinions: If you have reason to believe the appraiser overlooked a significant feature or made an inaccurate assessment of your property's condition, consider obtaining a professional opinion from a qualified expert, such as a building inspector or structural engineer.
Tips for Effective Documentation:
Be organised: Present your documentation in a clear and organised manner, making it easy for the lender and appraiser to review.
Focus on facts: Stick to objective facts and avoid emotional arguments. Present your evidence in a professional and respectful tone.
Highlight key points: Clearly highlight the specific errors or omissions in the appraisal report and explain how your documentation supports a different valuation.
3. Requesting a Reconsideration of Value
Once you've gathered your supporting documentation, you can formally request a reconsideration of value from the lender. This involves submitting your evidence and explaining why you believe the appraisal should be revised.
Steps to Request a Reconsideration:
- Contact the lender: Start by contacting the lender who ordered the appraisal. Explain your concerns and inquire about the process for requesting a reconsideration of value.
- Submit a written request: Prepare a written request outlining the specific errors or omissions in the appraisal report and providing your supporting documentation. Be clear, concise, and professional in your communication.
- Address the appraiser's concerns: If the appraiser raised any specific concerns about your property, address those concerns directly in your request. Provide evidence to counter their arguments.
- Be patient: The reconsideration process can take time, so be patient and allow the lender and appraiser sufficient time to review your evidence. Follow up periodically to check on the status of your request.
What to Expect:
The lender will typically forward your request and supporting documentation to the appraiser for review.
The appraiser may agree to revise the appraisal based on your evidence, or they may stand by their original valuation.
The lender will notify you of the outcome of the reconsideration process. If the appraisal is revised, you'll receive an updated report. If it's not revised, you'll need to consider other options.
It's important to understand that the appraiser is not obligated to change their opinion. They have a professional responsibility to provide an unbiased and independent valuation. However, if you present compelling evidence, they may be willing to reconsider their assessment. You can learn more about Homeappraisal and what we offer to assist you with this process.
4. Ordering a Second Appraisal
If the reconsideration of value is unsuccessful, you may have the option of ordering a second appraisal. However, this can be costly, and there's no guarantee that the second appraisal will be higher than the first. Before pursuing this option, carefully weigh the potential benefits against the risks and expenses.
Considerations Before Ordering a Second Appraisal:
Cost: Appraisals can cost several hundred dollars, so factor this expense into your decision.
Time: Ordering a second appraisal will delay the transaction, which could be problematic if you're under a tight deadline.
Lender requirements: Check with your lender to see if they will accept a second appraisal and what their requirements are. Some lenders may require you to use a specific appraiser or appraisal management company.
Potential outcome: There's no guarantee that a second appraisal will result in a higher valuation. In fact, it could even come in lower than the first appraisal. Consider the likelihood of a different outcome based on market conditions and the specific issues with the first appraisal.
When a Second Appraisal Might Be Justified:
Significant errors in the first appraisal: If you've identified clear and substantial errors in the first appraisal, a second appraisal may be warranted.
Changing market conditions: If market conditions have changed significantly since the first appraisal was completed, a second appraisal may reflect a more accurate valuation.
Unique property characteristics: If your property has unique characteristics that were not adequately considered in the first appraisal, a second appraiser may be able to provide a more accurate assessment. You might also find answers to your frequently asked questions.
5. Understanding Your Legal Rights
While you have the right to challenge an appraisal, it's important to understand your legal rights and limitations. In Australia, the appraisal industry is regulated, and appraisers are required to adhere to certain standards of practice.
Key Legal Considerations:
Appraiser independence: Appraisers must be independent and unbiased. They cannot be influenced by the lender, the buyer, or the seller.
Uniform Standards of Professional Appraisal Practice (USPAP): Appraisers are required to follow USPAP guidelines, which set forth ethical and professional standards for appraisal practice.
Right to a copy of the appraisal: You have the right to receive a copy of the appraisal report.
Right to challenge the appraisal: You have the right to challenge the appraisal if you believe it is inaccurate or biased.
When to Seek Legal Advice:
Suspected fraud or misconduct: If you suspect that the appraiser engaged in fraud or misconduct, such as intentionally inflating or deflating the valuation, you should consult with a real estate attorney.
Breach of contract: If you believe that the lender or appraiser breached a contract related to the appraisal, you should seek legal advice.
- Complex legal issues: If you're facing complex legal issues related to the appraisal, such as disputes over property boundaries or easements, you should consult with an attorney.
Negotiating a low home appraisal can be a challenging process, but by understanding your options and taking the right steps, you can increase your chances of securing a more accurate valuation. Remember to review the appraisal report carefully, gather supporting documentation, and communicate effectively with the lender and appraiser. If necessary, consider ordering a second appraisal or seeking legal advice. By being proactive and informed, you can protect your interests and achieve a favourable outcome. Remember to visit Homeappraisal for more information.