Category: appraisals

How to Challenge a Low Home Appraisal in Orange County

In a seller’s market, scenarios with multiple offer commonly increase the purchase price more than any comparable homes sold in the neighborhood.  This explains why in those situations many sellers are concerned their sales price may be affected by a low appraisal. In a buyer’s market, when prices are dropping, sellers have anxiety that the appraisal will come in low.

As of Sept. 6, market time to sell a home in Orange County analyzed by the Southern California News Group reached 98 days vs. 64 in 2017 and an average 76 days from 2012-2017. With this metric exceeding 90 days, by ReportsOnHousing’s logic, the conditions for a “seller’s market,” no longer exist. It has become a more balanced market in relation to supply and demand.

A low appraisal can be the result of one of the following:

Declining home values due to a buyer’s market; a larger inventory of homes with few buyers.

Neighborhood declines due to a large amount of foreclosed homes or short sales

Seller or agent priced the home too high

A newbie appraiser who failed to recognize local influences on value.

Appraiser did not consider pending home sales, which may have warranted higher value

Appraiser used comparable sales from the wrong neighborhoods. Example; Laguna Beach and Mission Viejo or San Juan Capistrano and Dana Point.

Sometimes when an appraisal is performed, mistakes take place, which provides you the opportunity to correct them. Here are seven methods to dispute a low home appraisal:

  1. Request a Copy of the Appraisal Report
    Seller don’t automatically get to see or review the appraisal inspection report unless you request it. Federal law allows the mortgage lender to provide a copy of the report to only the buyer (or person paying for it), based on information from the Bureau of Consumer Financial Protection. In order to get a copy, you should contact the buyer’s agent or buyer if there is no agent.
  1. Examine the Details of the Report
    Errors happen and can be very simple yet obvious mistakes. As an example, the appraiser might have checked the box for two bathrooms versus three, the actual number, or not give you value for double pane windows when all the other comps were given value. Check the data and if you find a wrong data point it out and fight it.
  1. Provide Updated Comps
    The appraiser will rely on recent local comparable properties sales data to value your property. It’s totally possible that a home can increase in value after it was appraised. Get your real estate agent involved and do some digging to find out if this holds true for your home.
  1. Make Sure You Have Permits
    If you made improvements such as a bonus room for additional living space but failed to get a building permit, most appraisers will not give you value for this. Keep detailed records of permits you have from the county or city for inconsistencies.

Related: How to Get a Home For Less Than it’s Really Worth

  1. Get Your Real Estate Agent to Meet With the Appraiser
    Make sure your agent is fully prepared with the comparable sales and listings and is aware of any improvements to your property that warrant your home’s valuation. If the realtor and appraiser are using different properties for valuation, sometimes the final appraised value will be detrimentally different as well.
  1. Contest an Appraiser Who Doesn’t Know the Area
    Every neighborhood and community has their own set of characteristics, which is why it’s very important your appraiser is familiar with your specific area. If an appraiser lives 60 to 100 miles out of the area, he or she may not be the best person to determine your home’s value. Inquire with the buyer’s agent about this fact.
  1. Renegotiate the Contract Price
    If the seller really needs to close on this home to buy another, sometimes they will become more flexible on the buyer not paying the whole difference in value.

An example, is say the appraisal value difference is $15,000, a seller may agree to accept $7,400 in cash and lower the price by $7,500.  Or if there’s a listing agent, they reduce their commission a little to facilitate the deal closing.

  1. Buyer May Cancel the Transaction
    A lot of purchase contracts include a loan contingency and appraisal contingency clause. If the appraisal comes in low or if the buyer fails to qualify for a mortgage to buy the property at the agreed-upon terms in the contract, the buyer can cancel the contract and get their earnest money deposit back. So, you may want to have a flexible seller before the buyer starts thinking of cancelling.

Home Appraisal Was Lower Than Purchase Price!

In Some Cases Appraisers Make Mistakes

The lender wants to know the home fist before fully approving your mortgage loan.

Essentially, the value of your home will establish what loan programs you qualify for and, what mortgage rate is available to you.

Lenders depend upon licensed home appraisers to confirm a home’s “certified” value.

Sometimes, an appraiser determines the property’s value to be below what’s required for a specific loan program.real estate appraisal

When your appraisal comes in under the estimated value, as a buyer or refinancing homeowner, the options you have are a few.

Appeal the Home Appraisal

Although appraisers use standard procedures and formulas to determine the home’s value, an appraisal is still the opinion of the appraiser, which means it is subjective.

An appeal may be warranted, if you’re able to provide documentation to support to an argument such as:

When the appraiser uses older “comparable properties”

The largest impact on a home’s appraised value is the recent sale prices of similar homes in the immediate neighborhood, preferably on the same street.

If the appraiser is using a nearby home which has less rooms (bedroom and bathrooms), and significantly less square footage, when another more comparable property is available, it is unreasonable.

An experienced Orange County real estate agent can help you locate more recent comparable sales.

When the appraiser leaves out home improvements

Appraisers work consists of investigating your home utilizing public records data.

This information public record has your home’s most recent sale price, the number of bedrooms and bathrooms, and a couple of other stats which an appraiser can use to come up with a range of estimated values on your home.

This method is known as an automated valuation model (AVM). The AVM is an “appraisal” without actually physically viewing your home; the on-site inspection will then be used to confirm what the appraiser has already found through public records.

If public record information is lacking some pertinent information, your home’s appraisal may leave out some major improvements made to the home.

To illustrate, if you’re taken out the old dust & bacteria filled carpeting and replaced it with Brazilian hardwood or ceramic tile floors, your appraiser wouldn’t not know that and would likely be missed.

A Common Situation is When the Appraiser Doesn’t Know the Local Area

Occasionally, a home is quite a distance away from the appraiser’s normal area, so an appraiser may drive 100 miles or more to conduct a appraisal.

When appraisers are unfamiliar with the neighborhood, the data from public record information tends to come into play more in determining value than the subject property’s features.

If you think that the appraiser doesn’t thoroughly know the neighborhood, this can be a good reason for an appeal.

When the Appraiser Commits a Mistake

Humans make mistakes, and appraisers are human. We all make an honest mistake. For that reason, it’s a good idea to look at your home appraisal and determine if there are any errors.

The errors on the report, if they occur, are likely to be wrong square footage and lot size; incorrect number of bedrooms and bathrooms; and, no mention of fireplaces, patios, or balconies.

Be prepared to show evidence of the mistake on the appeal.

If the appraiser or lender won’t fix the obvious mistake, then you take your business elsewhere where they will fix problems.

Starting your loan over may postpone the closing, but without a good appraisal, the closing may not ever happen.