When The Appraisal Is Too Low

People order appraisals for all kinds of reasons including buying or selling a house, refinancing a loan, getting a divorce, or receiving an inheritance. Oftentimes clients have preconceived expectations about the value, either because their Realtors sent them postcards showing neighborhood sales or because they looked at sites like Zillow, Redfin, or Realtor.Com. Therefore, they can be a little upset when they read an appraisal that differs with their assumption.

Buyers of real estate perhaps have the greatest presumptions about a home’s value because they have contracts which clearly state the purchase price. And a number below that price means they might have to contribute additional money, out of pocket, to cover the difference. Likewise, homeowners who are refinancing their properties frequently want a value opinion high enough to help them get a lower interest rate, shorten their mortgage term, or, most of the time, take some cash out of their home in order to pay off other debts or do some renovations. And of course someone who is getting divorced may be seeking a particularly high or low value, depending on whether they are staying in the home and buying out their partner or are the ones being bought out.

In fact there are a hundred reasons why a client may be hoping for a particular valuation, high or low, and there are options for someone who is disappointed after seeing a low appraisal report. These include asking for a reconsideration of value, ordering an appraisal review, or ordering a new appraisal from another appraiser.

A reconsideration of value (ROV) is a process where the client simply asks the original appraiser to retrace their steps. Perhaps there is some new, material information that wasn’t disclosed originally, or the client may have noticed an omission they believe could have an impact on the value. Whatever the reason, if you go this route of asking for an ROV, include items that you feel are missing from the report, such as factual errors.

For example, I once appraised a property that had an additional half-acre lot adjacent to the backyard. It was part of the sale, but it was not disclosed in the MLS listing or copy of the contract I received. This surplus land contributed value to the property, so when I received an ROV from the lender (which included an updated contract, deed, and tax record number), I was able to revise the appraisal report.

Think about why you are asking for the ROV. Is it just because the appraisal doesn’t help your situation, or are there material deficiencies in the report? At the end of the process, it is possible that the appraiser may not adjust the report; however, you’ll at least get some additional rationale for the initial opinion of value.

Another option you have is to order an “appraisal review.” This is an independent analysis and evaluation of the accuracy of another appraiser’s work, undertaken by a qualified appraiser. You will probably have to pay for this yourself, and it may cost as much as the original appraisal, but the benefit of an appraisal review is that it can be done quickly, and that it will point out any weaknesses of the original appraisal. It may even contain a new value.

If you require a formal review of another appraiser’s report, you can search for an appraiser with the AI-RRS (residential review specialist) designation using the “Find An Appraiser” feature of The Appraisal Institute’s page: www.appraisalinstitute.org. Likewise, some lenders will have their own appraisers on staff who can conduct reviews.

A third option in the case of a disappointing appraisal is to order a whole new report from a different appraiser. If you go this route, look at this as an opportunity to do things differently. For a buyer it might mean selecting an appraiser who is more experienced or geographically close to the property. For a seller it could gives them a chance to address aspects of the property that may have affected the value.

Whether it’s an ROV, appraisal review, or new appraisal, you’ll receive a fresh look at the property. And remember, an appraisal is an opinion of value. It’s one opinion, given by one person. You have a right to ask an explanation, and you are within reason to ask for a second opinion.