Most investors will tell you that one of the biggest problems they are facing today is not finding buyers for their properties but getting the banks to appraise them for what the buyers are willing to pay. Similar to lenders who were burned during the sub-prime market crash, appraisers have had their feet to the fire by the FDIC and other government review boards for being too liberal with their values during that time.
The result is that many appraisers today are feeling gun shy - consequently, they're being very conservative with their home evaluations. This can kill an otherwise solid real estate deal. So what do you do when it happens to you?
File an appeal & Check for errors
Ask the lender to reexamine the appraisal for any errors and make the lender aware of any errors you find yourself. It may be possible that the wrong square footage was used, or the wrong number of bedrooms or baths were counted. Other common errors include garages being evaluated as carports, or the appraiser missing something like a fenced yard or miscounting the overall size of the lot. The list goes on and on.
Also look at the comparable sales data the appraiser used and see if it truly matches up with the subject property. Is it very far away? Is there more than a 20% variance from the subject property? Are these comparable sales described properly in the report? It's quite likely that the appraiser assigned to the property by the lender has little or no knowledge of this particular neighborhood and is going strictly off what he or she finds on the internet. Make sure everything on the appraisal is 100% accurate.
Ask for a review appraisal
If everything in the report is either accurate or has been corrected and the appraisal still seems too low, then ask the lender to have a second opinion done on the appraisal, also known as a review appraisal. Evaluating a piece of property is as much an art form as a statistical science. Three appraisers can look at the same report and come up with three very different values. Having a fresh set of eyes look at your appraisal may be just what you need to get the value bumped up enough to get your deal closed.
Renegotiate your contract
If an appraisal comes in low on a short sale then use it to your advantage. Contact the lender and tell them their appraisal/BPO came in low and you are changing your offer on the property accordingly. This could actually save you tens of thousands of dollars on a short sale purchase. If you are the seller and an appraisal comes in low then approach your buyer and see if there is a way to restructure the deal. Maybe they are willing to put down more cash. Like everything else in life it depends on their needs and their situation. If they really want the property and have access to the cash to make the deal work for all parties then that's the best way to go.
Split the Difference
Maybe the buyer doesn't have all of the cash needed to make up for the low appraisal. If you can lower your purchase price to meet them in the middle while still maintaining your profits then this could be an easy solution. Giving up some of your money now may still be better than holding onto the property and all of it's carrying expenses for several more months until you get another buyer. And you may still face the same problem with that new buyer. If you can make a deal happen now, it's always wise to do so.
Find another lender
Believe it or not there are still many lenders in the market. If one lender's appraisers are consistently coming in with low values then shop around and go somewhere else. While this can get expensive if you are paying for these appraisals up front it is worth trying at least one additional lender if it means getting the deal done.
Image courtesy of Dave Dugdale via Flickr.com