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How to Prevent a Low Appraisal

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“I was told that the appraisal is one of the most important parts of my offer to buy a house. What can I do to make sure that it comes in at value so that the bank (or lender) will lend on the house I want?”

So how can you avoid a low appraisal?

The appraisal is extremely important – especially for buyers putting down small down payments (less than 10%).

If the property does not appraise for the value that you are wanting to either buy it for or sell it for, lenders will not lend and – as we very well know – no lending, means no purchase.

But what exactly is a low appraisal? There’s a big difference between an appraisal that came in 1% below value and an appraisal that came in 10% below value. The purpose of this article is not for the situations where appraisals are drastically lower than the purchase prices. It is for those situations where appraisals come in slightly below value and risk bombing a deal. For instance, if the purchase price is $255,000 and the appraiser brings the value in at $252,000. This situation happened to me and occurred because of an oversight in the neighborhood (a comparable was not noted as having power lines when, indeed, it did have powerlines nearby.) This article is for those small variations and how to attempt to prevent this.

Here’s a take by the Wall Street Journal on this issue: “Judgement Call: Appraisals Weigh Down Housing Sales.”

 [. . .] some realtors, home-sellers and economists believe low-ball appraisals also are undermining a housing recovery.

Appraisals are supposed to be unbiased assessments of a property’s value. The housing bubble that burst a few years ago was inflated, in part, by overly generous appraisals. Now, lenders are pressuring appraisers to come in with lower estimates, some real-estate professionals say. Banks also are using less-experienced appraisers, who often don’t appreciate factors that make a home worth more, they say. And valuations are being heavily influenced by distressed sales priced at a discount to the rest of the market.

There are a lot of educated, experienced, and knowledge appraisers who do wonderful work in the real estate market. Simply because a property does not come in at value, or low, does not mean that the appraiser did their job improperly. That may just be the value of the property. However, there may nonetheless be newer or less knowledgable appraisers that could use a bit of ground work to help them become more knowledgable about the area. This article is my opinion on how to ensure that an appraiser has a minimum amount of knowledge about a subject property as provided by the Realtor. This does not mean that an appraiser is obligated to even look at your packet, but it certainly does not hurt to provide them with information.

 ” REALTORS® and lenders can talk to appraisers, including requests to consider additional data or to correct errors.” ~Realtor.org

Steps to Preventing a Low Appraisal: Help the appraiser.

  1. Meet the AppraiserBe there. Meet the appraiser. Whether you are the seller or the buyer, insist that your agent be present for the appraisal of the property. Often times appraisers are out of area appraisers and may not be familiar with the specific neighborhood. The agent should be friendly to the appraiser. Friendliness goes along way, especially considering that a lot of appraisers are used to angry agents calling them after an appraisal has been conducted because the appraisal came in low. A simply way to be friendly is to introduce yourself, give the appraiser your packet (see below) and let the appraiser do their job. Wait in the kitchen or in the yard and simply make yourself available to answer any questions that they may have.
  2. Prepare a Packet of the below items. If you can, put the papers in an inexpensive and  labeled folder, or at least clip the papers together. Present this to appraiser with your business card and the line in number #8.File Folder for Appraisal Ventura
  3. Cover Letter: List all of the selling features of the subject property. The appraiser won’t know that the plumbing in the upstairs bathrooms has been redone within the last 5 years and has a 15 year warranty. List this! Tell the appraiser everything about the property that would not be noticed in a visual inspection. For instance, the concrete patio is heated, or the upstairs bathrooms have had new copper plumbing installed.
  4. Comparables. Have comparables prepared for the appraiser. Highlight the important attributes of each listing (address, date sold, square footage, price per square foot, days on the market, etc.) Use colored highlighters. Use yellow or red for the comparables and green or blue (soft, nice feeling colors) for the subject property. 
  5. Notes. Go through each individual comparable listing and write notes that compare it to the subject property. For instance, on my most recent appraisal, the specific property had a significant amount of upgraded features. So on each comparable I went through and wrote things like, “Paints need updating, subj. prop. is move in ready,” “subj. prop. has upgraded kitchen or bathroom, this does not,” or things like “subj. prop. has new, laminate flooring throughout the house, this comp has carpet throughout.” Dates of installs, quality of material, etc. Write whatever you can.
  6. Map and Label. Print out an MLS or Google Maps map with all of the comparablesnumbered. Label on the map major streets, amenities, issues, or oddities. For instance, comp #2 sits on the edge of a very busy street. Comp #3 is situated under noisy power lines. Subject property is located on the edge of the largest green belt in the entire neighborhood and is distanced from the nearest street by a wide parking lot and another unit. Map Report Appraisal
  7. Give the appraiser what they ask for: If the appraiser asks for the RPA (Residential Purchase Agreement), send it to them. Don’t forget. If they ask for the permits, get the permits and give the permits to the appraiser. I was recently asked for an RPA at an appraisal. Since I use DropBox on my iPhone and iPad, I immediately emailed the documents to the appraiser and he had them before the appraisal was over.
  8. List the Upgrades: Prepare a list of upgrades and warranties that the property has associated with it. The especially important upgrades to mention are not the visible upgrades, like granite counter tops and hardwood flooring, but upgrades that are invisible during a superficial-inspection. For instance, upgraded copper plumbing, a concrete patio with a heating system, an upgraded wiring system, a new ducting system, etc.
  9. Use this line (if you’re the agent). It should be clear that if the appraiser has any trouble bringing in the value of the property, they should call you and let you know. If you were friendly and helpful to the appraiser, they will call if there’s an issue.

[Name], if you have any trouble at all, please call me. I would be more than happy to send you more comparables and any information that you may need.

Clearly, none of the above steps are possible if no one meets the appraiser at the property. It is extremely important to meet an appraiser at the property, especially in a down market at the bottom of the real estate cycle.

Also, if you are a Realtor or an Appraiser and are wondering about the rules pertaining to what a Realtor can or cannot give or speak to an appraiser about, check out this PDF file by Realtor.org analyzing Fact vs Myth about Realtors and Appraisers.

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  • Raleigh

    Not all of the
    advice in this article is BS, but like any advice from a neophyte most of it is,
    but worse, some of it is bad.

    The appraiser
    is not representing you or your deal, but rather the interests of the lender
    and by extension, the buyer. If you feel compelled to elbow your way into the
    appraisers face, you will likely find the appraiser will reject the assignment
    and the lender will be compelled to find another one.

    Want to be
    helpful? Meet the appraiser at the property to unlock, offer a copy of the
    agreements and any inspections. Then, go wait in your car until it’s time to
    lock up.

    If you think
    the resulting appraisal is significantly flawed, file a complaint with your
    state appraisal board.

  • Chas

    Unreal, You are exactly the problem that caused the market to crash.  Have you ever heard of Uniform Standards or Dodd Frank “Appraiser Independence”?  The appraiser works for the client “Lender” not the borrower.  Seeding comps to the appraiser is not illegal but unethical.  You know that!!  Notice to appraisers, take warning..  Do your own research and come up with an independent conclusion.  To this article’s point, stay within your own geographic competency.  TO home owners, don;t listed to this unethical clown who is screwing you into owing more than your house is worth.  By all means, don’t ever hire him.  If he has no problem screwing the lender he will have no problem screwing anyone including yourself.  

  • Guest

    All of the items may not be BS, but the process is a step by step on how to influence value which can be viewed as contributing to a fraud.   I would advise other to disregard this person’s advise and sever business ties with him.   At this point this article has gotten legs and people will know, nationally, not to do business with this individual.

  • Raleigh

     
    Note to Bill, (Kevin’s Broker)
    This particular article was probably not a very good idea. Clearly, Kevin is chock full of enthusiasm but lacks a lot of knowledge and a little decorum. Maybe you could kick his arse a few times then send him back to real estate school for some tuning up! Then, try to teach him some respect for his clients and the other R.E. professions he’ll encounter while bobbing and weaving his way down the path of success as an agent in your company.

  • http://www.kevinpaffrath.com Kevin Paffrath

    Controversial statements in this article have been removed based on reader comments. 

    Thanks for your comments and support!

    • LibelFreeZone

      “Controversial statements have been removed.”  That’s weird.

  • Anonymous

    What rubbish!  Since you CLEARLY have only the first tiny inkling of a clue regarding the subject of your post, let this old Appraiser offer a few:

    1) DO NOT meet me at the inspection….EVER - unless I ask for some odd reason (e.g., unique home, security issues for high-end properties, etc).  I will do my best work – which is d*#n good – with no one messing about with my routine.  Friendly conversation is nice, and welcome most of the time, but it gets in the way when I am inspecting / analyzing the property.  If the owner insists on someone being there, and it has to be a Realtor, please conquer your urge to “sell” me on the house;  just hang out in the Kitchen until I’m done…THEN we can have a nice chat.

    2) NEVER push your “comps” on me.  If the property is somewhat unique to its market, such that your assistance would be appreciated, I will ask.   Lacking my polite request for assistance / insight, you are just killing trees and wasting toner with file stuffing that I cannot use – since there are various laws and regulations which prohibit relying on such information from an “interested party”.

    3) Save your “out of area appraisers” nonsense for the folks who still believe in fairy tales.  The NAR has done a good job of push-polling that faux problem into the colective conciousness over the past two years, but the economic reality is that the increased reliance on AMCs brought about by the HVCC (now Farnk’n'Dodd) has almost certainly increased the level of proximity between Appraisers and their engagements.  AMCs pay less and Appraisers, like anyone else I suppose, are less-willing to travel heroic distances for lower fees than we were for higher fees.  Suggesting that HVCC caused an increase in the phenoena of “long distance” appraising infers that you have actual data on the prevelance of such activities in the pre-HVCC era.  Since no such data exists, your suggestion is without the first whiff of merit.  Just because the NAR push-polled that new-found issue, pretending that such things never happened pre-HVCC, and a couple of media types fell for it hook, line & sinker, does not mean it is so.

    4) DO prepare a list of improvements completed while the current owners have owned the home, plus any they know of from the preceding years.  (This will be an absolute requirement in the near future, so don’t be surprised.)  Don’t bother with the cost of those improvements; cost does not equate to value and I have a pretty good idea how much such things cost – and a better idea how much they contribute in value relative to unimproved homes.

    5) DO suggest that the homeowner clean up a bit before the inspection – if at all possible.  Seriously, I know they think the house is sold, but I really do not want to see their “items of a highly personal nature” on the nightstand – or anywherre else for that matter.  I am no prude, but I have jsut about ru out of creative camera angles to leave such things out of the shot.  Spend a little time educating your sellers on the routine of a modern appraisal, including the fact that ultra-wide-angle photos of every room are likely to be taken and shared with the lender.

    6) Disabuse yourself of the childish notion that you know how to do my job better than I do.  You don’t and, hopefully – for your sake - never will.  If you have not been through the many years of education, training, and apprenticeship - paying only scant, if any, attention to the legal & regulatory environment we deal with every day – you might reconsider holding forth regarding your ill-informed opinion of how we should do our jobs.

    7) While you are at it, abandon your ridiculous pretensions that your out of state buyer was well-informed in negotiating that contract.  Some buyers are well-informed / well-advised, others are not, and an appraisal is not “low” just because it doesn’t support your deal.

    • http://www.kevinpaffrath.com Kevin Paffrath

      I appreciate your insight into the business from an appraiser’s point of view. I have integrated some of your arguments into my article. You may be a great appraiser and do your job properly. The following points are extremely important to ensure that an appraiser, who may not be as experienced as you, is as knowledgable as possible about the area and the subject property.

      1) Aside from being a friendly face to let the appraiser in, being present for the appraiser’s inspection to answer specific questions that the appraiser may have about the property is extremely important. I am frequently asked to either help the appraiser with convenience items, such as turning on the furnace while the appraiser is upstairs and the switch is downstairs, or providing the appraiser with the RPA and Counter Offers if they ask. I’m not encouraging agents to “hover” over the appraiser. Just being there and standing in the kitchen while the appraiser does their job is all that I recommend.

      2) I never “push” comps on the appraiser. I never ask or encourage any appraiser to use ONLY my comparables, but sometimes an appraiser – as they are only human – may overlook an important comparable that they would have access to as well. In such a case, an appraisal may come in artificially low.

      3) I am not suggesting that there is a steady stream of data that warrants my statement absolutely. Simply, even if every other appraisal or even 1 in 5 appraisals are conducted by an out-of-area agent, even 20 miles, can negatively affect the true, market value of the property. If an appraiser does not know that there are power lines afflicting other comparable sales, then this should be pointed out. If the appraiser states that they know the area very well, then perfect, back off and let them do their job. If they don’t know the area very well, simply provide them with the packet described above and let them do their job and be there to answer any questions.

      6) I never stated that I believe that I can do your job better than you. I simply stated that it does not hurt to double-up by doing as much as a Realtor can to assist an appraiser to ensure that at least the minimum amount of due diligence is completed. This article is clearly not intended for professional appraisals who have a lot of experience and are local.

      7) Would you be able to clarify? I don’t quite understand – but it’s early here! 

      • Anonymous

        R.e. #7…not all sales contracts have been well-negotiated.  Believe it or not, there are occasions where one of the parties does not negotiate a reasonable price and would end up paying too much, if not for the “bad” / low appraisal. 

        Also, I should have added #8 – DO NOT fool yourself regarding your economic / emotional interest in the contract.  From the moment a listing agreement or contract is signed, the Realtor(s) involved has a vested interest in consumating the sale – an interest that runs four to six digits and contributes directly to professional status.  Just stop with the pretense that any party with such a significant interest in closing the sale can be fully dispassionate regarding the actual Market Value of the property in question.

        • LibelFreeZone

          I’ve never seen a “bad” (low) appraisal not work to the benefit of the prospective buyer.  The seller?  Probably not, but many a buyer has saved a bundle on a low (to the seller) appraisal.

          What I don’t understand is why the appraiser should be apprised of the contract sales price. The value is the value, regardless of what the parties agree to.

          • Tiny280

            LibelFree:

            In my experience, the loudest cries of “low appraisal” often come from the Realtor who is supposed to be representing the Buyer.  Although most Realtors presumably do a good job of representing the buyers interests, instead of representing “the deal”, there seems to be a healthy percentage that gets target-lock on closing the deal once the contract is signed, regardless of the best interests of their buyer / client.

            The last time I “came in low” on an appraisal for a sale, the value appeal data-dump came from the buyer’s Realtor.  Before she even approached the seller to renegotiate to the lower appraised value, she called the LO to complain, told him I “just wasn’t very professional”, and demanded they hire a different Appraiser “who knows what he is doing”.  Then,when the lender told her that policy prohibited “value shopping”, she sent in 18 “comps” I “should have used” in the appraisal.  Of course, none were in the same condo development as the subject, 6 were in a different municipality altogether, and 12 were in a different school district.  Bottom line – only after she tried to trash my reputation with a client – the sale was renogotiated at the appraised value, saving the buyer $7,000 (5% of the purchas price plus all the additional percentage-based fees and lower payments as long as they own the condo, and my client did not over-lend on the purchase.  I am still waiting for the Thank-You call.

            In the end, I don’t mind knowing the particulars of the proposed sale.  I am paid – perhaps most of all – for my complete lack of concern about whether a sale closes or someone closes a loan.    I call it “GAS Factor Zero”.  Without out that complete lack of GAS, no Appraiser can possibly perform the intended function – a disinterested third-party opinion of value.  With that said, I do not “blow up” deals over trivial sums.  If the contract is $125,600 and my first pass at the data puts the value at $125,300…perhaps my understanding of the data was not quite that perfect.

          • LibelFreeZone

            Wise observations, Tiny.  Thanks for making them.

          • http://www.kevinpaffrath.com Kevin Paffrath

            Great input!

    • http://www.kevinpaffrath.com Kevin Paffrath

      Tiny280,

      I also wanted to point out that this article on Realtor.org: 
      http://www.realtor.org/wps/wcm/connect/f57e63804e57784890e4b3d4f1772a7a/HVCC+Flyer+6.16.09.pdf?MOD=AJPERES&CACHEID=f57e63804e57784890e4b3d4f1772a7a

      Presents fact vs myth statements. One important statement involves Realtors and Appraisers stating that, “ REALTORS® and lenders can talk to appraisers, including requests to consider 
      additional data or to correct errors.”

      • Anonymous

        Kevin:

        I never suggested otherwise – just that a pre-appraisal data dump of all the “comps” that would support the contract price is not a welcome intrusion in my practice.  Such data dumps are pretty much bottom-of-the-file stuffing – eventually going to a landfill without ever being read.

        If you want to be helpful, just let the Appraiser know that you are available for consultation if any quesitons arise, then get out of the way.

  • http://outofyourrut.com/blog/2011/06/12/7-reasons-why-arms-are-a-bad-deal/ Kevin@OutOfYourRut

    Excellent thread here.  I spent much of my life working between real estate agents and appraisers, so I can see both sides.   I see tremendous insight in Tiny280′s comments as an appraiser.  The real estate community has to comprehend that the game has changed–the appraisers are working for the lenders, and the work that they do is specifically to protect the interests of the lender, not the buyer and certainly not the real estate agent.  They don’t have the flexibility to accomodate buyers and real estate agents, certainly not in the way they did just a few years ago.  That past flexibility has contributed to the current state of the housing market.  Everyone in the industry have to own that and take the hit to fix it.

    This is just my personal opinion, but a real estate agent should use a low appraisal as a tool to help the buyer.  If a property “under-appraises”, that should be the signal to renegotiate the sale price, not to launch an attack on the appraiser to deliver a ”better value”.  As a real estate agent, are you really representing the buyers best interests when you fight for the higher price???  

    And yes, as an agent you’re also supposed to be representing the best interests of the seller, but can we be honest about something?  Many sellers aren’t realistic in the value assumptions about their own properties.  In a sellers market, it’s easier to accomodate the sellers price demands, but this is a buyers market. 

    Finally, property values fall within a range–it’s not possible to say that a specific value is set in concrete.  Sellers have an overly optimistic view of their homes value–real estate agents generally share their view (so they can get the listing).  Buyers usually have only the vaguest idea of valid property values, especially if they’re from out of town.  The lender has a more conservative idea of value–and considering that most buyers use maximum financing to buy, it’s really the lender who’s on the hook if the deal goes sour down the road.  The seller and the real estate agent will be long gone. 

    The lenders agent is the appraiser who’s job is to establish value–not facilitate a sale.  The real estate agent, by virtue of his profession, is a saleman first and foremost (otherwise he’ll starve!).  The appraiser is the only person in the transaction who’s job it is solely to determine true value.   He can face disciplanary action if he fails to do the job properly.

    Real estate is now in the middle of a massive revaluation, and based on the events of the past four years, that’s long overdue.  I think the entire industry needs to go with the flow on this.  There’s a lot of frustration in the real estate community about the revaluation, not the least of which because agents used to have more control.  But the powers that be in the lending industry are in charge now, so the game has changed.

  • http://www.kevinpaffrath.com Kevin Paffrath

    Great points Kevin. I would like to put out that I have updated some parts of my article to indicate that my article is intended for appraisals that come in 1-2% below the sales price, almost bombing deals out of spite. Certainly if an appraisal came  in at 10%-15% or more below value, then it is definitely time to renegotiate price. 

    Also, I would recommend reading this great Wall Street Journal article. It seems to have a decently balanced point of view. Here’s the Google link:

    http://www.google.com/url?sa=t&source=web&cd=2&ved=0CB4QFjAB&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424053111904006104576500170808091148.html&ei=U39UTpTgBcfciAL0g-DkCQ&usg=AFQjCNFgzgftVf8xX2Iyye4P9E58YeChow&sig2=A7YVrjlTe2wfGObKkS1nmg

  • Ronnapi

    RE: Low Appraisal tip #5.  Sounds great, may help, however, most State Boards require us to confirm things with the Listing Broker of the Comparable.  Most are just too important or too busy to call back and give Comparable information.  Some can’t even remember the properties, and won’t go pull out a File. As a result, we may discard that Comparable.  YOU can file a complaint against a fellow Realtor, WE cannot.

Kevin Paffrath

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