So you find yourself in a pickle, your buyers would really like to buy this house, and the sellers would really like to sell the house. But the appraised value has come in low, is this the end? Nope, there is help!
Most lenders do not want to admit it, but there are policies in place to have an appraiser reconsider the value they have put on a home. Appraisers are the 1st ones to admit, they don't see everything, and it is up to a good Realtor to ensure that all the "i" are being dotted and "t" being crossed, and all comparable are being utilized.
Sometimes appraiser overlook recent compatibles, or maybe there was a mistake in calculating square footage, or they didn't notice a recent update, keep in mind they are not Supermen, just humans.
Let's look into how a Realtor can help the situation and ensure the appraiser has all the information.
Initially it is up to the Listing Realtor to ensure that they have completed a thurough and professional CMA or Certified Market Analysis, training and CE classes are available to help Realtors complete a professional CMA.
For the homeowner the 1st step is the initial inspection, make sure the house is neat and organized. Make sure the appraiser can look in the crawl space/basement and up in the attic. Have homeowners write down any updates and upgrades they have completed in the last 24-36 months. If they have completed add-on's, have the building permits available. Also, ensure that the appraiser has the most up to date Purchase and Sales agreement with all addendums and counter offers.
Now the appraisal has come back, and it is below value. Don't freak out (yet), Call you lender and ask them if they have a Reconsideration of Value form and policy, most lenders will, if your lender doesn't, find a new lender. I have attached a simple Reconsideration Form HERE to download.
Most lenders will require you to submit all the information to them, and not directly to the appraiser, so please don't call up the appraiser and yell at them.
1st you will need to review the appraisal and make sure the appraiser utilized the comparable that you would of. Comparable need to be:
- Solds, it is recommended no more than 3, and I would say no less than 3
- If you provide pending, provide 1 or 2 in addition to the 3 solds, but pending may not have full consideration.
- Do NOT provide your subject house as a pending, duh.
- Do NOT providing listing that are not solds or pendings.
- Solds should be in the same neighborhood or with in 1/2 mile.
- If a comparable is further, comments will be needed to justify the further comparable if it skips over closer comparables.
- Solds should be with in the last 90 days, going past that and the appraiser may have to make additional adjustments.
- If a comparable is greater than 90 days, comments will be needed to justify the older comparable.
- Solds should be the same style of home, don't compare a condo with a townhome, or a ranch with a craftsman style.
- Solds should be with in the same age, don't compare a 2004 with a 1979 home, unless the 1979 has had significant updates.
Other items you need to provide:
- Provide actual print outs from MLS along with Reconsideration of Value Form.
- Don't base your value on price per square foot, Appraiser do not, and neither should you.
- Concise narrative, explaining the reason for each comparable, and why it is "superior" to the comparable they provided.
- Point out errors on the report, but don't throw the appraiser under the bus. Pointing out miscalculations and calling the appraiser stupid will not help your cause.
- Are older, newer, larger, smaller comparable being used?
- What about land size?
- If the error is in measuring, draw the house with your measurements, highlighting the differences. Get a grid pad of paper.
- Your contact information, the appraiser may want to call you.
You have a 1x opportunity to get this right, so spend time on it, but typically lenders will require all Reconsideration of Values to be submitted with in 1-2 business days of the receipt of the appraisal. Once you have submitted it, that is it, no going back, remember this is a 1x opportunity.
Once you have provided the lender with the proper documentation, they will review it and if meets their guidelines they will forward it to the appraiser. Typically appraiser will respond in a couple of days, depending upon how busy they are. The appraiser will add an addendum to the appraisal report, outlying your additional comparable and why he is using them or why he is not using them. The appraiser will then re-publish the report and send it back to the lender, and BOOM you are done.
But what if the appraiser still did not change the value, and you are sure as the sun will rise in the East, that they are wrong, and you at the end? NOPE!
The lender has 3 options at this time, 1 being to accept the appraisal, here are the other 2:
- A desk review, this will cost the buyer or the seller or someone extra money. The lender can request another appraiser to do a desk review, where as they will review the appraisal, with out visiting the subject property, and ensure that the original appraiser utilized proper comparable, and did calculations correctly. Then the reviewing appraiser can agree with the original appraiser or ask for corrections.
- A Field review, this will cost someone even more money. The lender will request another appraiser to review the appraisal and take a quick peek at the subject property. Once again agreeing or disagreeing with the original appraiser.
In both of these circumstances, there is extra time involved and extra money involved.
- Reward: You appraiser agrees with your Reconsideration and your home value goes up.
- Risk: You provide comparable and the appraiser lowers the price even further, or during a review the reviewing appraiser finds errors that lowers the price further.
An appraisers job is getting harder and harder with all the new regulations and forms which they must complete, some simple steps prior to the appraisal, such as staging, a good CMA, and proper information will assit the appraiser in givne the best value they can. But in the case of low appraisal, there are avenues for Buyers/Sellers/Realtor to go down to, hopefully, bring up the value.