Low Appraisal Killing a Transaction?

The National Association of REALTORS® reported that 16 percent of real estate professionals surveyed in June reported a cancelation in a sale, mostly due to a large number of low appraisals.

Many real estate professionals are watching transactions unravel, with some appraisals coming in 10 to 20 percent (sometimes more) below the accepted sale price.

“Over the past decade, finding ‘comps’ that accurately reflect values has been a challenge as values rose quickly during the boom and fell just as fast during the bust,” according to a recent article by RISMedia, 5 Ways to Fight a Low Appraisal. “Discounts paid for foreclosures and short sales have created a dual price structure between ‘normal’ and distress sales.”

Obviously one of the easiest solutions when a low appraisal comes in: Ask the seller to agree to a lower price. But when that doesn’t work, RISMedia offers some of the following tips for fighting low appraisals:

Research to Back Up Your Case
If your clients feel the appraisal was completed incorrectly, they have the right to get a copy of the appraisal from their lender and learn more about who performed it and what comparables were used. For example, your client can find out where the appraiser is based (maybe it was an out-of-town appraiser who was unfamiliar with the area).

“If your appraisal was conducted by an out-of-town appraiser unfamiliar with your market, you have every right to demand a new appraisal,” the RISMedia article notes.

Also, your client should evaluate what comparables were used in the appraisal. If your client feels unfair comps were used, they may ask their real estate agent to pull together a list of recent comparable sales — or possibly even pending sales too — to justify the agreed-to-sales price, which can then be submitted to the loan’s underwriter to help in asking for a review of the appraisal.

Request a New Appraisal
If your clients feel the appraisal wasn’t done fairly or accurately, they can ask their lender for a new appraisal. “Depending on how convincing your argument is, your lender has the ability to override the appraisal estimate, which is unlikely, or to order a new appraisal, which is more likely,” the article notes.

Get an Independent Appraisal
Your clients may opt to get their own appraisal. (If the loan is an FHA loan, they should ask the lender for a list of approved appraisers.) The bank will generally review the appraisal and ask the previous appraisal if they agree or disagree with the new one, the article notes.

“If the first appraiser disputes your appraisal, the bank may request a third appraisal done by another appraiser, or they may just reject your appraisal,” according to the article. “However, if the first appraiser agrees with the disputes you present, they may adjust their original appraisal and you may get a better price.”