Want to know how to respond to a low appraisal?
This post will show you exactly what to do when you receive an appraisal lower than purchase price or below the amount needed for refinance.
Receiving a low appraisal can be extremely upsetting for anyone who is looking to buy a house or refinance their existing home loan.
So I am giving you the exact process of how to possibly avoid an appraisal lower than purchase price and/or what do about it after you receive your appraisal report.
You are going to learn how to responsibly prepare for the appraisal and how to submit a reconsideration of value if necessary.
After you learn about the best practices to follow in order to receive the most accurate appraisal report you are going to be extra prepared when the appraiser calls to set the appointment.
This post is all about how to possibly avoid a low appraisal and exactly what to do if you receive an appraisal lower than purchase price.
How to Prevent a Low Appraisal
First things first, there’s no such thing as a low appraisal.
I’ll explain that fact in a minute.
But first, let’s focus on what steps you can take in order to possibly prevent an appraisal lower than purchase price from happening to you or your client.
There are no guaranteed ways to prevent a low appraisal but, here are the 3 best action steps you could (and should) take in order to plan for the most accurate outcome:
#1 – Have you prepared for the home appraisal?
Is your house ready for the appraisal appointment?
Do you have a list of improvements you that you have recently completed on your house handy to give to the appraiser?
Are all of the rooms accessible and have you removed distractions so the appraiser can take the necessary pictures of your house?
#2 – Have you provided a list of comparable sales to the appraiser?
When the houses were routinely selling for over list price, many realtors and homeowners were proactive in providing sales for us to consider when appraising their home.
Now that the market is cooling off, we are seeing less voluntary information.
And, when we request this information we are still not receiving it 100% of the time.
It really does not matter how confident you are that the house will appraise at a price that is equal or above the purchase price, it’s always a good practice to provide as much support as possible.
Appraisers are human and we can sometimes miss a sale.
So, being proactive can help to prevent many headaches down the road.
Also, the information that we are asking for should already be in your file.
How you determined the list price or the final sale price should be an educated and informed decision which includes researching recent sales in your market area.
Sharing this information with the appraiser is the best way for us to understand your decision so that we can correctly analyze your sales transaction within the appraisal report.
If you are refinancing your home then at the very least look at realtor.com to gauge the activity in your market. Also, you could reach out to a realtor friend and ask them if they could pull some recent sales in your neighborhood to help you to be informed.
RELATED POST: When Your House Sells for Over List Price
#3 – Providing all important information before the appointment is best.
Once we are finished inspecting the house we move right into research and report mode in an effort to provide our client the appraisal report as soon as possible.
So, if you wait a few days after the appointment then it just prolongs the process.
There’s No Such Thing as a Low Appraisal
Appraisals are not based on a requested minimum valuation, maximum valuation, or a specific valuation outcome.
So there’s no such thing as a low appraisal.
And, there’s no such thing as a high appraisal.
We are not appraising a sales contract.
Additionally, we are not appraising the sales that you have provided to us.
And, we are not appraising your neighborhood or your market area as a whole.
All of this information is considered and analyzed during the process of determining the market value of your house.
The market value of your house may be higher or lower than many things: the contract price, the neighbor’s house, the median sale prices of your market or just simply the number you were hoping for.
So the market value may be higher or lower than you expect.
But, the appraisal is neither high nor low. It’s just a report of the facts that have determined market value.
What Happens if the Appraisal is Lower than the Offer Price?
Our appraisal reports are extremely detailed and thorough so it’s rare for our office to receive questions from mortgage underwriters.
Once the report is approved by underwriting it lands in the hands of the realtor / borrower.
Here’s what most people do when they receive an appraisal lower than purchase price (in this exact order) :
- Look only at the estimate of value.
- Do not read report.
- Immediately call the appraiser.
The conversation usually goes like this:
Me: Have you read the report?
Them: No, but it can’t be right.
Me: ok, let’s chat as soon as you have read the appraisal report so that I can answer any questions that are not explained in the report.
Then I say a silent prayer for patience, kindness and gratitude since most folks ignore that advice and want to continue talking without reading the report first.
It’s ok, I know they are upset and disappointed so I just listen and then repeat the request for them to please read the report…. which they usually are ready to do once they know I am willing to hear their concerns.
When we are appraising a property for mortgage purposes we are not permitted to discuss value with anyone other than our Client, which in this case is the lender.
But, we are allowed to explain to anyone how to find information in an appraisal report, and how the process works, generally speaking. So this is what I do.
I encourage everyone who calls me to please read the report.
And, I suggest that if they should have any questions once they have finished reading the report to please contact me and I will do my best (within guidelines) to help them understand the process.
Since our office makes it a priority to offer insight and understanding into the appraisal process we rarely have any push back on our opinion of value.
But, every once in a while we do receive a request for a reconsideration of value, which we are happy to respond to in a respectful and informative manner.
Most appraisers will refer to these requests as ROVs.
How to Submit a Reconsideration of Value (ROV)
After you have read the appraisal report and you have determined that maybe the appraiser was not aware of certain facts that may have impacted the value then there is a process to ask for a reconsideration of value (ROV).
Most lenders have a specific form that you need to fill out in order to file the ROV request.
Then, the lender should review your request to determine if it sounds reasonable prior to forwarding it to the appraiser.
Sending information directly to the appraiser will not help you since we are only permitted to consider requests that are sent by our client (the lender).
It’s really important that you read the appraisal report first so that you can submit an ROV that is reasonable.
Here are some consideration requests that I have seen included in ROVs that are not reasonable and will not change the value:
- A sale that has been already included within the report.
- Sales that are located farther away (ignoring nearby comparable sales)
- Older sales (ignoring recent comparable sales).
- Houses that are much bigger, in much better condition or have higher quality finishes.
- New construction (when the subject of the appraisal is not new construction)
- Completely different location / school district (ignoring comparable sales in the same location / school district)
- Properties with commercial zoning (when the subject property is not commercial)
- Multi-family homes (when the subject property is a single family home)
- Current listings (anyone can ask any price they want – a listing only provides a look at the current supply available, not a final sale price)
Here are some consideration requests that may result in a change:
- Incorrect or missing information regarding the subject’s site, size, improvements, etc.
- Providing sales that are more comparable than the ones which are already included within the report.
- Pointing out a recent off-market comparable sale of which the terms and the conditions of the sale can be verified as an arm’s length transaction.
- Comparable sales that settled shortly after the effective date of the appraisal (I have no problem including these but the underwriters may not accept them as the only reason for a change in value – so in this case I would suggest a new appraisal to be completed which would change the effective date allowing for the most recent sales to be included as support).
Or, if you desire, we offer a consulting service where we can gather and properly analyze the necessary information for you to submit an ROV.
Remember, appraisers are providing a third party, unbiased opinion of value based upon the information that is available at the time of the report.
Although we do have a fiduciary duty to our clients, we are not advocates.
Because we do not have any motivation or attachment to the outcome our opinion is the best representation of the estimate of market value.
So, in my opinion, in order for the appraisal process to go as smoothly as possible, the more information that you share with the appraiser at the very beginning of the process, the better.
This post is all about how to possibly avoid a low appraisal and exactly what to do if you receive an appraisal lower than purchase price.
