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Challenging Low Appraisals: Think Like An Appraiser!

By Hank Miller | February 27, 2013

Problems with “low” appraisals continue to be an issue, and even more so in markets where home values appear to be on the rise. A rising market moves faster than the appraisals; consider that appraisers are required to use only closed sales. In a market where increasing prices are seen over the last quarter or two, this can present big problems as the data does not reflect current conditions. Compound that with a diminished number of sales and the “pool” of comparables for this spring is small.

© James Martin -

© James Martin -

There is no easy fix at this point, but preparation prior to the appraisal may help. The very first thing to do is understand what an appraisal provides; simply put, an appraisal is a tool used by lenders to ensure adequate value exists in the property being collateralized. Appraisers are required to follow strict underwriting guidelines; there is very little wiggle room with regard to report composition. Third party reviews are common, as are automated valuation mode checks; think Zestimates but with much more detail and accuracy.

So how do you challenge a low appraisal? Simple, think and act like an appraiser. That includes understanding how to measure a home, what constitutes living area, positive and negative influences on value…. A few critical things to keep in mind:

  • Appraisers do not set the real estate market; they report current trends and establish the most likely market value of a home at a specific time. New data could enter the market the next day and change that opinion.
  • Appraisers work for the lender; they do not work for the buyer or seller.
  • Appraisers are required to follow underwriting guidelines. These parameters and requirements are given to them, they are expected to be followed or the appraiser does not work.
  • Purchase appraisals completed for a lender are intended to ensure adequate value to cover the amount borrowed. The appraisal is not intended to validate sale price.
  • Appraisers are disinterested third parties to transactions. There is nothing to be gained by “coming in low”; appraisers are not out to “kill deals”.
  • Distressed sales are considered in the overall market analysis. If comparable, they may be considered in the report. Not all distressed sales are in poor condition.
  • Finished basements are finished basements – not living area. These add value and utility, that will be accounted for on the report but these areas will not be included the total living area of the home.
  • Despite what HGTV says, no improvement returns dollar for dollar.
  • Appraisers measure the outside of homes; some use lasers, some tapes, some wheel, some round off…others don’t. No two appraisers will measure a home the same way. There are clearly established parameters that an appraiser is required to follow. Agents, assessors and others do not always hold to these standards. Learn how to measure a home like an appraiser.

Changes to the appraisal business brought on by the real estate crash have resulted in many experienced appraisers leaving the mortgage side of the business. There are appraisers that are marginally adequate; when encountered it is best to be “helpful” with applicable data.

Applicable data means just that. If there is a dispute, think like an appraiser. In the simplest terms, this means providing comparable sales data to support your position:

  • Closed sales within six months preferably, but not over a year
  • Closed sales within the defined competing area, typically under a mile
  • Closed sales that are physically similar to the subject – style, bedroom count, size, age, lot, location
  • Closed sales that are a “reasonable alternative purchase” to the subject; the comparables should be functionally equivalent to the subject with similar appeal. If the subject were offered for sale, the comps would be reasonable alternative purchases to it.

Pending comparables might be used to help ascertain current activity; active listings are likely to be dismissed. As reports of stable to increasing values populate the media, sellers are already increasing list prices; appraisers recognize this and little reliability will be assigned to listings.

It’s best to get ahead of any potential problems. Despite being expected to do so, some appraisers may not have access to all available data. There is nothing wrong with an agent providing an appraiser with all potential comparables (see above); this ensures they see everything. It's also not a bad idea to provide a fact sheet about the subject, again to ensure that all of the positives are noted.

Friction between agents and appraisers is best overcome by finding common ground. The appraiser has no reason to “kill” any sale; they are simply doing what they are expected to do by their client in the same way the agent is working for theirs. At the end of the day, if everyone does their job in a professional manner problems can be successfully overcome.

Hank Miller is a full time Associate Broker and Certified Appraiser in Atlanta. He is known as much for his attention to detail as he is for his candor. Visit for all things real estate.
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