4 smart moves to challenge a home appraisal

for sale sign in front of a house.

Here's a nightmare scenario for anyone trying to sell a home: a deal-killing appraisal that shows your house isn't worth nearly as much as your sale price.

This is not an uncommon occurrence.

Each month, about one of every 10 real estate agents reports that low appraisals scuttled a home sale, according to the National Association of Realtors.

A low appraisal can lead to a canceled sales contract because lenders won't approve mortgages for more than the home's value.

But if you believe your home is worth more than the appraisal shows, what should you do?

Most lenders have a process for challenging an appraisal, says Bob Lear, a real estate appraiser for more than two decades. But you must be prepared to point out mistakes the appraiser made in comparing other properties or by missing new or upgraded features in your home.

Our 4 smart moves won't guarantee the outcome you're looking for, but they should help protect against honest mistakes.

After all, an appraisal is just the appraiser's opinion.

Smart move 1. Give the appraiser a reason to change his opinion.

Appraisals by the Numbers

Source: National Association of Realtors

Number Explanation
76% Realtors who reported appraisals with no problems.
6% Realtors who said a low appraisal caused a sale delay.
9% Realtors who said a low appraisal led to a renegotiated sale price.
9% Realtors who said a low appraisal led to a canceled sale.

Too many people just contact the appraiser and say "you're wrong," says Lear, owner of Lear-Annoni Appraisals in Eden Prairie, Minnesota.

That tactic won't yield a new appraisal.

To get a second look, "you have to provide me different data — data that is different than the data I used," he says.

Read your copy of the home appraisal, then consider whether you can offer the single most persuasive item: new comps.

A "comp," in the real estate world, is a point of comparison.

The best way to know what a home is worth, the argument goes, is to compare it to a similar home that has recently changed hands. Adjust the price up or down to compensate for differences, and you'll know your home's value.

If a similar home in your neighborhood recently sold for more than your appraisal, especially if the sale took place after the appraisal, bring that to your bank's attention.

Smart move 2. Point out poor or missing comparisons.

Look at the comps the appraiser used. He or she might not know all the homes in your neighborhood that have sold recently.

The appraiser will only find comps if they're listed in the Multiple Listing Service.

If a home changed hands without ever being listed, it's similar to your home and it sold for more than the appraiser said your home is worth, then that's new information the bank and appraiser should see.

Short sales and foreclosures can also throw off appraisals of similar homes.

When you bring this to the appraiser's attention, you might say that this comp was a distressed sale or that, yes, the house down the street sold for less, but it had no plumbing.

It's tough to find comps for unique properties. If your property is unlike the others in its neighborhood, look at the comps the appraiser used. Are there other comps that are arguably more appropriate?

Lear recalls a duplex in Shorewood, Minnesota: "We did the best comps we could, but the bank needed a comp with the same square footage and the same bedroom number. Those didn't exist in Shorewood, so the bank accepted comps from a different suburb."

That could be grounds to dispute an appraisal.

If properties rarely change hands in your neighborhood, that's another potential problem.

Comps should be properties that have sold within the last 90 days. If your appraiser used older comps, you may be able to show that the market has changed.

Smart move 3. Highlight the changes you've made to your property.

An appraiser might not have noticed your home's new or upgraded features: a new kitchen, redone or additional bathrooms, updated decor, updated roof, new furnace, updated central air conditioning, finished basement or new fireplaces.

Point them out.

Richard L. Borges II, immediate past president of the Appraisal Institute, a Chicago-based industry group, says appraisers often find it handy to have the owner present during a review of the home because it lets them ask questions and get them answered right away: How old is your roof? How often do you have to have your septic system serviced?

If you aren't at the home during the walk-through, leave a letter detailing all you've done to your home.

If, after the appraisal comes back, you see that the appraiser missed some of the changes you've made, let the lender know.

Remember, though, that "the cost of new and upgraded home features rarely equals value, unless something is at the end of its life," Lear says. "I appraised a home for a gentleman who was transferred six months after he bought the home. He remodeled the kitchen during that six-month period and sold the house for what he paid for it, plus the entire cost of the new kitchen. The old kitchen was from the 1960s, and the house was in an area that was becoming very popular."

Smart move 4. Seek a second opinion.

You can attempt to sway your lender to revise the appraisal by getting one on your own.

Lear remembers being hired by a homeowner seeking a second opinion on the appraisal of his home in Edina, a Minneapolis suburb.

Lear found problems with the home's appraisal and sent his notes to his client's bank, seeking to have the initial appraiser issue a revision or for the bank to order a new appraisal.

"That appraiser compared the client's home to six homes in Minneapolis, St. Louis Park and a completely different neighborhood in Edina," Lear says. "Not one of those is near this house. These are terrible comps."

Getting another opinion doesn't guarantee success, but it worked for this homeowner, Lear says.

In the end, you may or may not be able to get the value changed. The appraiser has to answer to underwriters, so they're not very willing to change values.

  • SissyO

    This VA dude appraised my house for $25k less than a conventional appraiser 6 months ago. When I asked him to reconsider because the other properties did not back to the 17th T (only 8 in the whole neighborhood do) he said my view wasn't a sweeping view and why did someone pay less than I was asking on the market at that time? Total asshole. I have requested a reconsideration of value. He's supposed to be a veteran. What a fucking sell-out. Also, probably just hates country club types like me.

  • SissyO

    That's not true. There are many factors you can use to appraise. If that were true, due to the loser foreclosures, nobody would get the true value.

  • SissyO

    Especially the VA loan appraiser system. $450 in VA? Lenders encourage before receiving the appraisal or them even showing up? Yeah, that instills a lot of faith in the feckless government system. Just more fleecing and degrading the veterans they are supposed to be supporting.

  • DA

    Greg. what if an appraiser values a property on false information such as the size of a lot. the lot is a combined 1/2 acre lot (unity of title) but the appraiser is appraising it based on the buyer splitting the lots up and building a second home. The lot is united as 1 lot and recorded with county and city. how can he carelessly support that information?

  • me

    The real question is what can be done to the "appraiser" who is screwing people over.Is there legal recourse or a licensing board or something to stop there shysters?

  • tr

    We are going through this now, I live in San Diego, ca we had our home approved 29, 000 lower than then the home identical to ours. We have Solar panels installed and what is happening is the appraisers need to take courses in appraising homes that have renewable energy. We are trying to get it changed now but are having big problems. I even sent a copy of my contract showing I own my panels and value (20,000) and I have to find and send more info. My neighborhood is going to have this problem until education is done, so my neighborhood Council came up and wrote a bill got it passed and approved through Senate 9 renewable Energy bill AB1381). Now we have to wait for the Realtors Assoc. to train their appraisers. This will help a lot of people ,but in the mean time I have to fight.