Tips To Ensure You Get The Best Appraisal Results.
So, you are in the process of buying a property or refinancing one you currently own. Whichever you are doing you will need to order, pay for, and successfully execute an appraisal to the bank’s liking in order to close on the loan. An appraisal is an assessment of the property’s overall condition (inside, outside, and underneath in some cases). The purpose is to ensure that its value supports the loan amount you are asking for. If the appraised value comes back at less than what you are purchasing or refinancing for you won’t be able to close on the loan! Let’s go over your options as to how you can work around this seemingly show stopping problem! Trust us, we’ve dealt with it many times!
Before we begin we need to dispel a common myth that is “the appraisal cannot be challenged”. This cannot be any further from the truth. What you need to realize is that you own that appraisal, and you are paying for it. Just like any other service you pay for you must be satisfied, or else you can ask for adjustments to be made. The bank doesn’t own you and doesn’t get to decide your financial future! You are in charge!
Once In A While You Need A Second Opinion.
The simplest way to solve your appraisal woes is to simply order another one. Yes, I know it’s expensive, but it could make all the difference (especially if you are refinancing based on loan-to-value ratios). Take this example that happened to myself. I was refinancing a 5-unit property and the first appraisal came back at $350,000. The problem I had with that is I knew the market was calling for it be worth more than $500,000 if I went to sell them. In addition, they were 2 buildings and the appraiser were counting them as 1 combined. I attempted to plead my case to the appraisal company, but I might as well have rearranged the socks in my drawer; they could care less. All the appraisal companies care about (like home inspectors) is getting to their next job. They get paid per job, not for their quality. Sad, but true! I’m open to debate this if you disagree.
More to the point, I re-ordered the appraisal with a new company and let them know of the issues I experienced with the 1st company. The appraisal came back a few weeks later for $530,000. That’s a $180,000 difference. Can you believe that? Now, that’s a very rare situation, but hey, it happened. The moral to remember here is that just like anything in life appraisals are subjective (as they are done by a person). It’s subject to error, opinion, and bias. Beware!
Assist In The Comparable Properties Data Collection.
If you don’t have the dough to re-order a new appraisal your next step is to offer comparable properties in the area that show your property is worth more than the appraiser suggests. You can do this on your own, but it will likely be discounted (and not respected) by the appraiser/bank. Your best bet is to have a licensed, qualified real estate agent provide their MLS assessment/comparisons for you. This is a professionally compiled report that will show subject properties in the immediate area and how they relate to yours. There is a chance that the appraiser could consider these comparable properties and provide an adjustment to your appraisal amount. It’s not a guarantee but it’s worth a shot. Most importantly, it costs nothing to try!
Review All The Assumptions For Accuracy.
Finally, you could attempt to dispute the details/expenses the appraiser used in calculating your assessment. Take this recent example that just happened to one of your clients. What happened was the appraiser mistakenly noted that the homeowner paid all the utilities for all 6 units in the property. This was untrue! Each unit was separately metered, and the tenants paid their own utilities. However, the appraiser counted the cost of all utilities against (as a liability) the appraisal assessment. This resulted in the appraisal coming back at $30,000 less than what was expected. The client caught this error and brought it forward. Ultimately, after some back and forth the appraiser adjusted the amount to not include the owner paying for all utilities. How nice! The moral here is that SOMETIMES the appraiser can make technical errors. It’s important to ensure they properly account for utilities, square footage, livable space, number of stories, number of parking spots, laundry facilities, age of appliances/roof/systems, type of surfaces/flooring, etc. All these details work to create your final value. If some of them are incorrect or miscalculated it can only hurt you!
In sum, you have 3 options when it comes to your appraisal results. You can re-order a new one, appeal the comparable properties being used, and finally, contest the details/calculations used. In my experience your best bet to save time and get the best results is to just re-order a new appraisal. It costs you extra but it could get you in a better position than you thought!
We would love to hear your feedback on this topic! Post a comment below so we can start a discussion!
Gregory Rice is the Vice President of franchise sales for Nexus Property Management®.
Nexus Property Management® is a National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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