A home appraisal is an important part of buying and selling a home. You have to go through the appraisal process to buy a home with a loan, refinance your current mortgage, or to sell a home to anyone except a buyer with all-cash.
During an appraisal, a professional gives their unbiased view on the value of the home. The appraiser creates a report based on their inspection of the home, current trends in the market, and comparable sales nearby of similar properties. A borrower usually pays for the appraisal fee. If a home appraises for lower than what was anticipated, then the bank may not extend financing. A bank wants to make sure that they’re not giving a loan to homeowners who are borrowing too much because the home is loan collateral.
The appraisal is just one way a lender is protecting themselves and minimizing their losses if something happens and the borrower defaults.
If you’re a seller and you get a lower appraisal than expected, you may have to lower the price of your home. If you’re a buyer, you might not get financing.
There are some things you can do to challenge an appraisal if you feel it’s too low, though.
Get a Copy
If an appraisal is threatening to derail a sale, the first thing to do is to get a copy. You can’t challenge it if you don’t know what the issues are. Sellers don’t usually get access to the appraisal, but the buyer, if they paid for it will.
From there, once you get a copy, look for errors. Appraisals can and do have errors. For example, the square footage could be wrong, the number of bathrooms could be listed incorrectly or the home could be listed as being in the wrong neighborhood.
Are The Comps Up-to-Date?
One of the biggest factors that play a role in an appraisal is the comparable properties or the comps. Comps are homes that might be located nearby or have similar square footage. These homes also should have sold within six months or more recently if they’re included in the appraisal. If the comps used aren’t appropriate, it can be grounds to challenge an appraisal. For example, maybe the comps include a foreclosure or a home that’s much bigger or smaller.
There may also be recent sales that would be appropriate comps that aren’t included.
Were Any Improvements Left Out?
An appraiser will want to know what improvements have been made to a home. They may miss them, however. For example, maybe you’ve added a bathroom or bedroom. If this is left out, again it can be a factor you can use to challenge an appraisal.
How Well Does the Appraiser Know the Area?
Your lender isn’t allowed to choose the appraiser to make sure the process is impartial. However, this can mean that the appraiser isn’t necessarily qualified, at least not in the particular area. Knowing the area well is key for a good and accurate appraisal.
If an appraiser is coming from 50 miles or more away, then they’re just not going to be familiar with the neighborhood. You might be able to appeal to your lender and get another appraisal if this has been an issue.
Even before you get an appraisal, you can look the person up who will be doing it. If you don’t feel like they’re qualified or they don’t have the necessary local knowledge based on your research, you can request that your lender get a new one.
It should be noted that while there are opportunities to appeal an appraisal, you’re not always going to get what you want. The lender might turn to an appraisal review committee if there’s an issue, and that could actually lead to an adjustment that’s downward.
If you find yourself in a difficult situation with the appraisal and your lender isn’t being helpful, you may have to find another bank to finance the home.