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 out of every 10 real estate agents report 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 Inc. 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 décor, 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.

  • Bob Richardson

    We had an appraiser give us a horrible report replete with errors and clearly indicative of a lazy approach to his work. Because it was lower than it should have been (he did not even accurately report comps in the locale or come into the house to see the upgrades), we did what you would do with any other merchant who does not do the work you pay them to do; dispute the charge with the credit card company. We tried to talk to him, but he refused to discuss his report with us. Impuissance is the only reason we can figure out -- he did not want to admit his malfeasance.

  • http://www.MakingTheComeback.com/ Travis Scott

    Great advice...I'm going through this right now. We live in a Ryan Homes development...so all the houses are pretty similar. The appraiser used homes in our development that have sold in the last six months for between $105 - $110 per square foot. These houses are literally less than 1/4 mile away.

    Then he appraised ours at $94/square foot. Trying to fight this now, but I think it is going to be a loosing battle. At the same time our neighbors got their house appraised for $109/ square foot. It's Crazy!

  • KL

    We had an appraisal done last year and then found a deed problem that took 4 months to fix. The appraiser is now saying that we have to do a new appraisal because it is under a new contract number and new dates so that makes it a new assignment. He said he has to go by USPAP. So I guess we are going to be out another $450. Sounds like a bunch of BS to me.

  • Stephanie Russo

    I have a major issue with
    a lender who not only does not want to use me but now calling other
    lenders and slandering my name. The
    issue started last fall with Liberty home equity who will not accept my
    appraisals out of nowhere . I contacted the lender after finding out through
    AMC to dispute this matter. Liberty claimed they sent a letter on October 29 2014 to my home address but then
    told the AMC and Bill Merrill my professor who was helping with this matter they sent this letter to my
    PO Box. It seemed to me and everyone who
    was aware that there was never a letter sent out. Finally on Christmas eve I get
    a letter on a file that never closed . The file and order was never for Liberty
    Home it was for Perry Funding. However
    the I sent back my rebuttal letter and also contacted the AMC about these
    revisions they claimed they had asked for. Apparently Liberty never sent these
    revisions to Perry nor the AMC. I addressed each concern accordingly . The AMC
    contacted liberty letting them know these revisions where never requested and it's
    not the appraiser fault. Liberty never contacted me back and then a month later
    removed the AMC basically for verifying
    we were correct and this was a misunderstanding. Six months later as of
    April 2015 I received a call stating Liberty Home Equity contacted a lender in which I do work for slandering my
    name. Now this lender does not want to use. me. None of these banks have
    notified me or the AMC as to why. I have now hired an attorney because this is
    affecting my lively hood and causing me stress and loss of business. I have
    been an appraiser for over 12 years and never had a bank remove me.

    There needs to be some kind of guideline set forth on this
    issue. These banks are getting away with everything. There underwriter is the
    one who approves these loans not the appraiser. My job is to inspect a property
    and have competence to come up with an opinion of value. I don’t think it's fair that us appraisers go
    thru schooling and take courses every 2 years to keep our license for a person who sits behind a desk to dictate my
    job and who is not licensed. The worst
    part is I have under writers in different states reviewing my appraisal who
    have no knowledge of my state or area in which I have appraised. USPAP states
    you must be competent to appraise a certain area and hold a
    state certified license in order to complete the job. This is the cause of the
    issues in the banking industry. Everyone blames the appraiser who is licensed
    and has the education to conduct their job. I'm tired of reading about an appraiser who
    loosing there lively hood and has to start all over in a new career all because
    an uneducated person with no real
    knowledge of my field tarnishes their name.