What a Home Seller can do When an Appraisal Comes In low – How to Salvage the Sale

Copyright © 2014- 2019 AUTHOR: Paul R. Marino, REALTOR®, e-Pro®

 

Be smart. Be informed. "Education is when you read the fine print; experience is what you get when you don't" (Pete Seeger). This article is written especially for prospective home Sellers, interested in preserving their hard fought home owner equity. After all, it's your money.

 

Mortgage lenders are now paying very close attention to the appraisal, and when an appraisal comes in low, it can be the death knell of many a transaction – especially if the buyer has no cash (or very little cash), and are unable, or unwilling to make up the shortfall. There are obstacles in the way of you seeing your net sale proceeds if you don’t understand how to deal with this very common problem.

 

Picture this scenario. You’ve identified what appears to be a viable buyer for your home. Whether the buyer found you via Realtor.com, Zillow, Trulia, or, alternately, a Buyer Broker introduced them, you are nonetheless excited just to have a Buyer! Everything looks great…nice couple, both employed at big, established local companies, financing is pre-approved by their mortgage lender, there is no home to sell, and they have excellent credit. What could go wrong? Unfortunately, a lot. What you ask could have gone wrong when everything looked so right? The appraisal. It came in low.

 

Back in the old days (I’m talking before the world financial meltdown of 2008), no one really paid much attention to the appraisal. Nobody cared. Mortgage lenders figured that property values were rising year in, year out, and would until the end of time. If the buyers were foreclosed somewhere down the road, lenders figured that property values would have risen high enough to cover the loan…no harm done. Unfortunately markets don’t work that way. What goes up can, and often does, come down.

 

And down they came. The reaction of many home sellers when an appraisal comes in low is to immediately jump to the conclusion the “value is there” and the appraiser must be a fool, incompetent, or worse.  S  T O  P.  Sit down, take three deep cleansing breaths, and read on.

 

Before you get started you need to face the facts, and you must follow the facts, no matter where they take you. Try to step back from the transaction, and put yourself in the impartial role of an appraiser. The appraiser presumably doesn’t know you, doesn’t know the buyer, and has no particular interest in whether the appraisal “makes it”, comes in low, or comes in above the contract sale price.

 

Their job is to report their unbiased opinion of market value and relay it to the lender, so the collateral for the loan can be evaluated. It is important for you to know that the appraiser (per federal regulations) is prohibited from discussing any aspect of the appraisal with anyone other than the client without their specific consent (very special emphasis on the word "client"). In the majority of cases, the client is the lender, and is not, repeat not, the buyer (who, yes, I know, paid for the appraisal).

 

So when you've left your 5th phone message and 11th email with no reply from the appraiser, don't be surprise. They are avoiding you. What to do? Before you can get to the bottom of this, you need to see an actual copy of the appraisal, and the only way that is going to happen is to make contact with the loan officer and request a copy be provided to you as a party to the transaction, so you can make a determination if you have a case, or not.

 

The mortgage lender doesn’t have to give you anything, and in some cases won’t, but many times they are willing to cooperate. Why? Same old story…if the loan doesn’t close, they don’t get paid either. If for some reason the lender won’t provide a copy, ask the buyer to get one for you (the lender is obligated by federal law to provide the buyer with a copy), and they in turn, can plaster it on a highway billboard if so inclined.

 

OK, now that you have a copy of the appraisal, you need to read it, cover to cover. Most of it will be nothing but “canned” boilerplate rubbish, but read it nonetheless. The “meat and potatoes” of an appraisal is the selection and adjustment of comparables. Now I want you to pay particular attention to the next few bullet points, because they are based on decades of experience.

 

There are only three ways to affect an upward modification in the market value estimate for your property and salvage the transaction. You have to do one or more of the following:    

 

1] Prove (unequivocally) that you have identified superior, more representative inputs that serve as a better gauge of value than those used in the appraiser’s report;  

   

2] Demonstrate that the adjustments made are illogical or, mathematically incorrect;  

   

3] Identify any important features or characteristics in your home (or a comparable) that may have been inadvertently overlooked by the appraiser. In another post, I will provide additional detail as to how to accomplish the three items cited above, but for now, understand this is going to take time, hard work, and perseverance.

 

Trust me, this isn’t rocket science, and you can do it, but you must take a calm, measured approach, and set your emotions aside. Market value estimates can be modified, but only if they are based on cold, hard facts, and solid research. Good luck. Be smart. Be informed.  GO TO:  US Dept. of Justice