Dare to challenge a low appraisal

The National Association of Realtors reported in May that a low appraisal resulted in a contract cancellation for 9 percent of agents and a delay for 10 percent. For 13 percent of Realtors, an appraisal below contract price opened the door to a sale price negotiation re-do.

Generally, borrowers faced with a low appraisal need to make a bigger down payment or walk away from the transaction. However, they also have another option they could try: Submit a rebuttal or reconsideration letter to the lender with input from their agent or an appraiser. Chances are slim that the lender will change its mind; however, lenders are sometimes willing to assign a new appraisal if there see evidence of incomplete or inaccurate work.

To succeed in a rebuttal, borrowers who challenge an appraisal should focus on factual errors, flawed methodology and/or new or missed comparable sales – and leave their emotions out of the equation. It could be worthwhile to pull additional comps to determine whether the appraiser missed something – especially now that home sales are on the rise – and hire a review appraiser or local real estate agent with access to the MLS data used by appraisers.

When it comes to luxury homes, Chicago-based appraiser Chip Wagner says, “The appraiser must have a grasp on the newest technologies, the highest quality materials and upper-end appliances and how they contribute value.”

Rebuttal letters these days often cite the quality of the initial appraiser, as the 2009 Home Valuation Code of Conduct rules forced many independent professionals out of the business and left behind appraisers with little experience or market familiarity.

Experts add that a professionally bound rebuttal – with copies sent to the loan officer, underwriter, bank president, buyer’s and seller’s attorneys and agents, the appraisal management company and the appraiser – will have a bigger impact.

Source: Wall Street Journal (07/26/13) Martin, Anya

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