Appraisal disappointing? You have options, according to the Appraisal
"Homebuyers and sellers should first understand what an
appraisal is and how its used," says Jim Amorin, president and acting CEO of the
Appraisal Institute. "Real estate appraisals for mortgage finance applications are
prepared for the bank or financial institution so they can better understand the collateral
risk in making the loan. This can be confusing, because homebuyers typically pay for the
appraisal and receive a copy of it."
In some cases, the appraisal may not match the contract
pricebut just because an appraisal comes in below (or above) the listing or contract
price doesnt mean its flawed, Amorin says. The agreed-upon contract price may be
above market value, for example. In those situations, the buyer and seller often renegotiate
the contract at more favorable or balanced terms.
Homebuyers should ask their lender for the qualifications of
the appraiser, including whether they are designated by a professional association like the
Appraisal Institute, says Amorin. A qualified and competent appraiser knows how to conduct a
thorough market analysis and make appropriate adjustments.
Homebuyers also can ask whether the appraiser is directly
engaged by the bank or whether the bank utilizes an appraisal management company, and what
their procedures are for engaging qualified appraisers.
"The best way for consumers to combat potential problems
with appraisals is to ensure the appraiser hired by their lender is highly qualified and
competent," Amorin says. "Consumers have every right to demand the use of a highly
qualified appraiser, someone with field experience in their market and knowledge and
experience to handle the assignment properly."
Contrary to incorrect interpretations of appraiser independence
requirements, appraisers welcome information that would assist the development of credible
assignment results," says Amorin. If lender policies permit, consumers can accompany
appraisers when conducting the property inspection and may provide the appraiser with any
information they consider important.
Amorin suggests consumers ask their lender for permission to do
so, and confirm the appointment. Consumers should also take note of whether an adequate
inspection is performed. Did the appraiser spend enough time at the property to observe
important features or improvements or potential problems?
Homebuyers should take advantage of their right to obtain a
copy of the appraisal report," Amorin says. Even though the appraisal is ordered to help
assess lender collateral risk, buyers are entitled to a copy of the appraisal report. Federal
regulations require lenders to provide property buyers with free copies of appraisal reports
no later than three days before the loan closes.
Although appraisal review is best performed by qualified
appraisers, consumers should examine the appraisal for potential deficiencies, says Amorin.
According to "Appraising the Appraisal: The Art of Appraisal Review," common errors
in appraisals include: misuse of adjustments to comparables; disregarding special financing
and concessions; or miscalculation of gross living area (GLA).
Amorin suggests consumers ask themselves:
- Do adjacent homes add or detract from the value of the subject
- Is the subject property equal to or lower in price than
- Does the floor plan have any functional problems?
- Does the house (particularly the kitchen and bathrooms) require
major remodeling to make it comparable with similar homes in the same price range?
- Is the number of bedrooms and baths in the home comparable to
similar homes in the same price range?
- Did the appraiser perform an adequate inspection?
"Most lenders have appraisal appeal procedures, known as
Reconsiderations of Value,'" says Amorin. "If youre aware of recent,
comparable sales information or items that may not have been available or considered by the
appraiser, provide those to the lender. If problems were found with the first appraisal, you
can and should obtain a second appraisal."