6 Ways Homeowners Can Dispute an Absurdly Low Appraisal

By GoBankingRates Staff | July 31, 2014 AAA

estimated home valueCount it as one of the most frustrating and disappointing of all real estate quandaries: You're selling your home, and you've got a willing buyer to pay your asking price ... but only one problem exists. Just before the deal is sealed, your home is appraised by the mortgage lender at a value lower than you were hoping for.Now you can sell your house cheaper than you'd planned, or not sell it at all if the buyer bails on an unsatisfactory negotiation. Either way, you're at a loss.

It's not enough good news that mortgage rates have lowered, as the U.S. housing market finds a foothold in this economy. Taking away what interest rates make more affordable, a low home appraisal can prevent the sale of a home, leaving the buyer, seller and house in a bind.

Learning how home appraisals work, and some tips on disputing an appraisal lower than you think is right, can help the sale of your house follow through with less trouble, not money.

Why Is My Home Appraisal So Low?

Your home's value can be determined by a number of factors: Everything from the age of the house to neighborhood crime rates can determine a community's popularity on the resale market. The National Association of Realtors (NAR), via the Los Angeles Times, reported that 33 percent of their salespeople reported appraisal problems in May of 2013.

According to the Los Angeles Times, it's often all a matter of catching up. Low appraisals reflect low market values. However, appraised values in housing markets seeing an upward trend aren't matching new home values. Other times, it's a matter of appraisers unfamiliar with a local housing market applying values from another surrounding neighborhood where homes are valued differently.

Appraisals vary depending on the appraiser. One real estate broker explains how it's done: "I make adjustments for every minor detail that would make it different than the others," said Karyn Anjali Glubis, a realtor in Tampa, Fla. "Adjustments are made for location, age, extra bedrooms, fewer closets, newer bathroom fixtures etc., as I want my initial pricing to come across as accurate. A homeowner seldom undervalues his property; however, with these details, I am able to price the home based on market value and demand."

But even with all these factors in place, if you're a seller, and your asking price is $350,000, and the potential buyer's bid is $280,000, but the lender chimes in with an estimated home value of only $250,000, that's money lost, or worse, a deal blown.

Avoiding the Low Ball

home appraisalThough it's not baseball, it can feel like it. How do you avoid a low ball appraisal yet swing for the fences at the same time? Successfully challenging a low home appraisal can be difficult.According to Beverly Hills-based mortgage broker Gloria Shulman, changing an appraiser's mind can be difficult because many are swamped with other appraisals. Plus, big banks who hire appraisers prefer low-ball estimates because of a reduced risk that might come with first-time mortgages or refinanced deals.

If you find yourself being pitched a low-ball appraisal, there are some things you can do while you're at bat.

  • Loan timing. According to Shulman, timing a loan like a sale is helpful when getting a property appraised. Look at neighborhood trends, she said; by paying attention to "For Sale" signs and listings, you'll be able to gauge the best opportunities to sell high and refinance low when to get your home appraised.
  • Don't panic! Just like good timing, don't rush into refinancing your home if it's unnecessary. Shulman suggests planning three to six months out before getting an official appraisal.
  • Do some research. Check out local open houses. Are there many foreclosures? What are other, comparable properties selling for? Visit your local tax appraiser's office -- can he provide you with recent local home transactions? Passing on some hard numbers to an appraiser unfamiliar with your neighborhood can improve the chances of getting a better estimate and avoiding a low home appraisal.

House Appraisal Tips

house appraisal tipsWashington-area financial advisor David Donhoff said that successfully challenging a low appraisal sometimes comes down to human error. Defects in an appraisal report, like an incorrect number of bathrooms listed, photos of the wrong house or a mistake in the square footage can all void an appraisal. Appraising your own home with some minor household improvements can go a long way before you get an independent appraisal.

  • Keep things tidy. The Wall Street Journal suggests that one of the best ways to an appraiser's (and a buyer's) heart and wallet is to spruce up your house if it's being shown. Clean and orderly rooms, carpeting and walls go a long way in expressing the word "value" to a visitor.
  • Manicure that lawn. There's no need to start carving topiary animals in your front yard, but it is important to keep your landscaping well groomed and weeds at bay. Curb appeal means house appeal, and, according to the Journal, sets apart your house from others on the block, which can lead to a higher appraised valuation.
  • The $500 differential. The Journal says that appraisers often work in $500 increments, so if there's a minor home repair, leak or damage to your home in that amount, get it fixed.

Be Up to the Challenge

With all those bases covered, you'll still need to be on the defensive if you're presented with a too-low appraisal. Michele Lerner of HSH.com said that when all else fails, you're free to cancel the sales contract if an appraisal isn't satisfactory. You can always challenge the paperwork by comparing your facts with the appraisers, and, as an added measure, request a second appraisal if need be.

People are following this advice to great effect, it seems. The NAR reported that 11 percent of contracts in Q2 2012 were canceled due to low appraisals, while 15 percent were renegotiated.

Lerner reminds buyers and sellers that when seeking out another appraisal, back it up with fact, not opinion. A house is an asset; don't let it go to waste with an unsatisfactory appraisal that doesn't reflect its true value.

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