No investment has seen more uncertainty in the past four years than real estate. While stocks may have lost a significant amount of value, much of that value has returned, but that isn't true of the real estate market. While some areas are finally seeing home prices rise, resulting in more buying and selling, many areas are still at such depressed levels that homes can be on the market for years. Individual homes are appraised more than we realize. Localities appraise properties regularly in order to asses property taxes. When a home is being sold or refinanced, an independent appraisal is ordered by the bank in order to assure they are lending against the true value of the property.
Types of Appraisals
If you're unhappy with a home appraisal, find out what type of appraisal took place. Some mortgage companies, in order to cut costs, do an electronic appraisal where they do an Internet search of comparable homes ("comps" is the appraisal term) and base the value of your home on the comps and other factors easily found without visiting your home. Another type, often used for county appraisals, is the drive-by appraisal, where somebody may take a current picture of the home and research comps without going in to the home.
Finally, the traditional appraisal takes place when the appraiser enters the home and collects current information and compares it with area comps. These appraisals often cost several hundred dollars and occur when a home is being sold to a new owner. If you find that the low value was a result of an electronic or drive-by appraisal, request a traditional appraisal and cite the reasons why.
County appraisals are conducted so property taxes can be assessed based on the current value of the home. If you aren't planning to move in the near future and the assessment comes in too low in your opinion, remember that your property tax bill will also be lower. If you're planning to sell your home in the near future, call your county auditor. Most localities allow you to appeal the assessment by providing evidence of upgrades and remodeling. Finally, when valuing a property, real estate agents are more likely to research the comps in your area instead of using the county's or locality's assessed value so it may not be as important as you think.
If you're purchasing a home and the appraisal came back too low, resulting in the lending institution not approving the loan, you have a number of options. First, as the purchaser of the appraisal you have the right to see the appraisal. Work with the seller's real estate agent to make sure that all upgrades, improvements and large-scale repairs were factored into the appraisal. Next, ask the seller's real estate agent to speak with the appraisal about the comps they considered when establishing a selling price.
You can request that the appraiser reexamine their findings based on your own research of comps in the area. If there are very few recent sales in the area, the appraiser may have found similar homes in other areas that weren't as comparable as originally thought. If you can provide information to the appraiser, they may reconsider their findings. Finally, when challenging the appraisal, remember that people have feelings and they won't want to admit that they're wrong to somebody who has put them on the defensive. Challenge the appraisal in a respectful manner, always keeping conversations business-like and emotionless.
The Bottom Line
Sometimes a low appraisal can work in your favor regardless of whether you're the buyer or the seller. If you're purchasing a home, a low appraisal may give you the opportunity to pay less for the home. Remember that appraising includes historic market events and can't accurately reflect today's market sentiment. It's an art and not a science.