How to Obtain a Fair Real Estate Appraisal

Saturday, June 1, 2013, AM | 3 Comments

So you’re about to sell your home and the agent and local comparables indicate that the value on your home will be substantial. You plan on that amount while engaging in the purchase of a new home as well as the financing. You’ve put down a deposit a buyer is interested in your old home.

The discussions happen, the deal is about to close, and an appraisal is required. The report comes back and the appraiser says the home is worth $50,000 less than everyone estimated. Everything falls apart.

The above scenario is a common situation that plays out across the U.S. on a regular basis. Sometimes it seems like appraiser are entirely in a different planet, agreeing with new builders on their values, but deep-sixing existing homeowners when it’s their turn to sell. The difference is a primary cause of more used home sales going bad prior to closing than any other reason.

Background

The use of an appraiser is not a self-torture; these licensed evaluators are required by law to ensure that both the buyer and seller are working with the most accurate information about a real estate property prior to closing a sale.

Lenders often use appraiser information as well to make sure the money financed is not more than what the home is worth. This is important since the home often acts as collateral for the loan should payments not be made timely.

The appraisal itself is not based on any particular standard value for homes. Instead, the valuation is calculated based on comparables, or similar homes in the immediate area selling as well in relatively the same time period. Where sales don’t happen near as often, the appraised value can be a bit behind the times. On the other hand, where many sales happen frequently, appraisals can update faster than the homeowner or buyer expects.

To make matters worse, areas that have been hit heavily by short sales and foreclosures cause bad data to appear, potentially influence appraisals incorrectly.

The above said, appraisers are often hated by both negatively affected homeowners selling as well as realtors. As much as a third of sales end up having an issue with an appraisal thanks to an unfavorable report. This includes both new and used home inventory. In fact, the problem is so widespread, 1 out of 10 sales get cancelled as a result.

How to Get a Fair Appraisal

Ideally, an appraisal should be performed by an experienced licensed appraiser who knows the region and the specific market trends of the area. Unfortunately, many lenders are instead relying on appraisal companies who in turn hire and use junior appraisers because they cost less. They also make more mistakes from a lack of experience and lack of local market knowledge.

That said, buyers and sellers often grow emotional over appraisal reports when they produce disagreeable results, and these people have no mathematical basis for their position either.

Instead, to confirm if an appraisal is fair, a buyer or seller needs to engage in the following steps:

  • Disregard Internet websites, focus on real appraisals – While it may sound like a push to hide agreeable information, most Internet real estate sites use what is called an automated valuation model. These tools generally use property tax records versus comparables, posting inaccurate informal values. That then causes confusion for buyers and sellers trying to make a deal happen.

  • Always request a free competitive market analysis – A real estate agent can easily produce a CMA or broker’s quote, which gives a far more valid picture of a property’s value.

  • Get an independent appraisal – If a buyer or seller is willing to pay the fee, he can obtain his own appraisal. This allows control of the valuation as well as the information included in the estimate. Often times lender appraisers don’t bother to include additions and improvements to a property, low-balling a property value as a result.

  • Improve and clean up the property prior to any appraisal – Whether the appraiser is self-hired or the lender’s appraiser, the property should be cleaned up as much as possible to give it the best possible review. This includes repainting, getting rid of old furniture, cleaning stains, and redoing the landscaping.

  • Have a list ready detailing all improvements – Any appraiser should be fully informed of any improvements to the property. These all count towards increasing the final total value in the appraisal report. Go through the list in person and with your agent present as a witness.

  • Counter the lender’s appraiser – Right before the lender’s appraiser finishes, make sure he has a copy of the buyer or seller’s independent appraisal report. This makes it much harder for the lender’s appraiser to just make up a guess without context. Now he has to take into account the same information as the first appraiser. It also puts a burden on the lender’s appraiser to find hard reasons why his figure should be different.

  • Challenge a bad report – Buyers and sellers should always scrutinize a lender’s appraisal for mistakes or omitted data. Where found, the appraiser should be given a chance to make changes. If he won’t cooperate, then a formal complaint should be filed with the local state appraisal board. Enough complaints can have an appraiser in hot water as well as get his license suspended. Since that represents the official bread and butter for income, he will be sensitive to the complaint potential.

Buyers and sellers can’t force an appraiser to come up with a desired number. These officials are independent for a reason. But that doesn’t mean people have to accept a bad report as the end-all, be-all. A good challenge with a second appraisal often forces a fair report to be produced, either up front or after a conversation.

Author’s BIO

Paul Everett has worked as a residential loan officer in the New York City area and writes for SmartHippo and RateZip. Connect with him on Twitter@mortgagerate, or by e-mail: pknag@ratezip.com.

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  1. 3 Responses to “How to Obtain a Fair Real Estate Appraisal”

  2. By http://essayguaranteed.net/ on Jun 1, 2013, 6:42 am | Reply

    Amazing post! Thanks a lot for sharing.

  3. By Christopher Umphress on Jul 25, 2017, 8:19 am | Reply

    Get an independent appraisal – If a buyer or seller is willing to pay the fee, he can obtain his own appraisal. This allows control of the valuation as well as the information included in the estimate. Often times lender appraisers don’t bother to include additions and improvements to a property, low-balling a property value as a result.
    Christopher Umphress recently posted…All About EscrowMy Profile

  4. By LNWeaver on Aug 9, 2017, 5:23 pm | Reply

    That seems valuable that appraisers are required by law to offer the best appraisal possible. I guess that’s because it helps safeguard the industry. Property is the most expensive investment most people make.

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