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How to Challenge a Low Appraisal (Advice From a Real Appraiser)

by Ryan Lundquist on February 27, 2013 · 58 comments

  
Appraisal rebuttal example

A few years back while visiting the ER I found out I was allergic to the drug Phenergan. I felt absolutely awful, so when the nurse offered me a drug and said it would help, I was game for that. But as soon as Phenergan entered my bloodstream, I began to shake violently in the hospital bed. It was surreal because I had zero control over my body and felt like I was having a seizure. It really freaked me out, but I think my brother beside me was even more shaken as he watched things unfold. Thankfully the on-duty doctor was able to inject some Benadryl in my system to stop the allergic reaction.

Okay, so maybe my reality in that moment of being utterly unable to control the situation isn’t a perfect analogy to talk about appraisals, but there is something to be said about putting so much sweat and capital into making a deal work, but then an appraiser controls the destiny of the transaction because of a butchered value. I’m not talking about an appraisal that doesn’t meet your sales price, but a value that is plain and simply legitimately too low. There can definitely be a sense of powerlessness when that happens.

Rebuttal Tips and a Document for You: There are many articles on BiggerPockets about dealing with bad appraisals, but I’m pretty sure this is the first one from an actual appraiser. Today my goal is to provide you with two things. First, let’s talk through some tips for putting together a rebuttal. Second, let’s look at how to format these tips into a document you can use in your business whenever you need to challenge an appraisal.

QUICK TIPS for challenging a bad appraisal:

  1. Write it down: Make sure you write out your thoughts in a logical manner so the lender and appraiser can listen to your reasoning.
  2. Novel: Don’t write one.
  3. Filter Thyself: Leave name-calling and finger-pointing inside your head.
  4. Provide specific support: Be specific about why the value opinion is different in your mind. The appraiser might have made some clerical errors, but focus on critiquing the meat of the appraisal, which is really comp selection and adjustments given (or not given).
  5. New comps: On top of picking apart the comps, make sure to supply 1-2 other sales for the appraiser to consider. Be sure they are truly competitive, which means they shouldn’t be twice the size or located in a superior area. Would a buyer consider purchasing the comps as a replacement for the subject property if the comps were still on the market? That’s what competitive means.
  6. Be humble: You might be right, but you could also be wrong.
  7. Bullet points format: Organize your thoughts into 5-10 specific bullet points so the appraiser and lender can easily digest your reasoning. Avoid lengthy paragraphs and emotional points void of logic and specific data. The first few bullet points ought to be Comp 1, Comp 2, Comp 3 and then whatever else might be relevant.
  8. Ask questions: After you present a point, ask the appraiser to explain why certain adjustments were made or not made. As an example, “Comp 2 is located next to a gas station, but no adjustment was given. This may have been a clerical error on the part of the appraiser. Why did the appraiser not make an adjustment for an adverse location?”
  9. No pressure: Remember to not pressure for a higher value. Stick with the facts and try to help the market speak for itself. You are asking the appraiser to reconsider the value, not meet your sales price. In fact, don’t even suggest a minimum value for the appraiser to meet. With some focused communication, you can provide support for a higher value without saying, “it’s worth at least X amount”.
  10. Opening Paragraph: “After reviewing the appraisal for [address] by [appraiser], we would like to request further clarification and investigation by the appraiser. We would like to ask for a reconsideration of value based on the following points:”
  11. Closing Paragraph: “We would humbly ask the appraiser to take a second look at the information above as it relates to data and adjustments in the appraisal report. We appreciate your time and consideration, and please let us know if you have any further questions.”

A REBUTTAL FORMAT TO DOWNLOAD: Now let’s put all the points above into a simple format so you can save it to your desktop and then use as needed whenever you have appraisal issues. See the image below or DOWNLOAD a WORD DOC or DOWNLOAD a PDF (the downloads have a detailed example rebuttal too).

how to challenge a low appraisal

I hope this was helpful. Anything you’d add or any stories to share on successful appraisal rebuttals?

Photo Credit: ogimogi via Compfight cc
Photo Credit: dok1 via Compfight cc

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{ 58 comments… read them below or add one }

Jason Grote February 27, 2013 at 8:10 am

Ryan,
Thanks for posting this! This is surely something to put in your toolbox! Appraisals are becoming an increasingly hot topic as sellers are trying to put the depressed values of the past behind them.

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Ryan Lundquist February 27, 2013 at 9:06 am

Thanks Jason. I appreciate it. I do hope it helps. It seems rebuttals are hit and miss depending on the lender as well as the appraiser, but it’s worth the effort if there is a legitimate case for challenging the appraisal.

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Joshua Dorkin February 27, 2013 at 8:51 am

This post will be a great complement to our podcast tomorrow, which will be featuring Ryan.

Nice work!

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Ryan Lundquist February 27, 2013 at 9:09 am

Thanks so much. I appreciate being on the podcast too. I’ve been loving listening in every Thursday.

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James February 27, 2013 at 9:12 am

This is great advice! Thanks. My wife and I just went through this when we bought our home. The first appraisal came in well over the contract price- but the lender insisted on a review appraisal (our home is in a sparsely populated county, and thus there are very few comparable to choose from). The review came in slightly low. It took a month to get a review appraisal, and the reviewer was not nearly as thorough, and did not go into the house to see the quality of construction that added value (One of the comparables he used was a hunting cabin- complete with plywood siding!- and no adjustment was made for quality of construction). We filed a rebuttal, and I wish I had this advice then. Fortunately, I think I did most of what you are suggesting, and was able to point out several mistakes- ultimately, they only accepted one major clerical error (appraiser did not know the house had central air and heat- this mistake was actually on the original appraisal as well) and it brought the value within $900 of the contract price. I had to pay that to close- the seller couldn’t come down easily because it was a bankruptcy sell, and it would have required additional court approval. The whole appraisal process was a nightmare- and as a result, I have little faith in the accuracy of appraisals in general. Perhaps the process is easier and more accurate in more populated markets… but I have heard plenty of horror stories about larger markets, too.

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Ryan Lundquist February 27, 2013 at 9:25 am

Thanks for sharing the story James. I’m sorry to hear things unfolded that way. It sounds like the values were so close. I’m wondering why the lender would give so much weight to a review review appraisal that did not involve an interior inspection (not to mention the plywood cabin issue and error with CH&A). That seems like a silly guideline. It can make a huge difference in value to inspect the interior, understand the layout and know the quality of construction and condition too.

I do think you’re correct about populated markets, though there are horror stories in every market.

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Giselle May 15, 2013 at 4:47 pm

My area is very populated, but the appraisal for my condo came back $100,000 lower than I expected that is $60,000 lower than the minimum I hoped for.
Two chosen comparables are both in the worse part of the area that is not even our neighborhood. The third one is on the same street, but is 2 bedrooms/2 baths, however, the appraiser listed it as 3 bedrooms/3.1 baths and adjusted its price down for my 4-bedroom/3 bath property for not having 0.1baths. There are no adjustments for my extra bedroom, extra laundry room, upgraded closets, no adjustments for 12ft by 14ft patio, no adjustments for the top floor (two of 3 comparables are on the 1st floor).
I flipped and started a dispute today. The officer tried to convince me that it’s a very lengthy process with a bad outcome for me and my rate lock. I asked for a paper support of his words and viola!, his manager is going to look at it tonight instead of in 2 weeks.

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Ryan Lundquist May 15, 2013 at 6:44 pm

Hi Giselle. I hope it works out in the end. It’s surprising to hear of a lack of adjustments. It’ll be interesting to see how the appraiser responds (if you do actually hear back). Good for you to press through the loan officer’s discouragement of going through the process. If you feel money is on the table, you should do all you can. Are there other sales to support a higher value though? That will be critical.

J Bell February 27, 2013 at 10:30 am

I hate to be the voice of disagreement in this thread…..however I’m going to be. I’ve been a real estate investor for 20+ years now. Every deal I have been in that had a “bad” appraisal has ended up the same– The appraiser sticking by his appraisal each and every time it was challenged. I’ve seen them questioned with grace and humor and I’ve seen them challenged with yelling and swearing. But I have never had a single appraiser change his opinion when it came to a SFH, even with what I and others considered overwhelming documentation. I get out and away from the appraisal especially if it is a residential situation and move on. (Commercial is a whole different game) It has been my experience it is quicker and more decisive. I’d love to hear from others about their experience with questioning appraisals and their success.

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Ryan Lundquist February 27, 2013 at 10:42 am

Thanks J Bell. You’re probably not alone either. That’s the tricky part. It really depends on the lender and appraiser involved. As an appraiser, if I made a mistake or somehow misinterpreted the market, it is my duty to go back and change the report to be accurate and consistent with the best available information and trends.

I have seen some investor clients have success with their rebuttals, but at the same time some appraisers are unwilling to really consider new information that may be accurate. That’s unfortunate when that happens – especially if there is a blatant misunderstanding of the market.

One thing that nearly all appraisers will change though if need be is a clerical error or error in measuring that impacted value. An investor client recently had this happen because the appraiser measured the house as 150-200 square feet smaller than it was. This investor had me review the appraisal for him, and that was one of the glaring issues since Tax Records showed a larger GLA. I thought there may have been other reasons why the value should be slightly higher, but I told the investor it was VERY likely there would be an adjustment upward by $5,000 due to a square footage error. That’s what happened.

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Seth February 27, 2013 at 11:22 am

Great post Ryan – I think you’re right on this. I just challenged an appraisal this past month and we were able to come up with substantial evidence that bumped up the value by $500,000. It’s definitely possible, but it probably depends on the willingness of the appraiser to consider new information (and more importantly, that new information has to be pretty legitimate in the first place).

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Ryan Lundquist February 27, 2013 at 2:13 pm

Thanks for your story Seth. Did you mean bumped up value “to” $500,000 or “by” $500,000? I think you’re right that success is truly circumstantial – and that it has to be legit.

Karen Rittenhouse February 27, 2013 at 9:22 pm

Thanks, Ryan, for taking the time to share this. Very helpful, especially coming from an appraiser!

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Paul Crowson February 28, 2013 at 5:31 am

Thanks for sharing the info Ryan, I have read your docs several times, and listening to the podcast also, I have done a few REI deals, and this info will greatly help me interact with the appraisal process much better, also informative to me is all the comments generated from other members here, good stuff!

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Ryan Lundquist February 28, 2013 at 6:01 am

Thanks Paul. Congrats on the few deals you’ve done. That’s great. Keep me posted if you have any questions. Appraisers are definitely a part of the equation. :)

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Ryan Lundquist February 28, 2013 at 5:59 am

Thanks for your encouragement Karen. I appreciate that.

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Heather Ostrom February 28, 2013 at 8:03 am

Spectacular work again Ryan … this is a phenomenal post. I think prepared, poignant, and polite are the best points to make.

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Ryan Lundquist February 28, 2013 at 8:06 am

Thank you so much Heather. I appreciate your kind words. Knowing your team too, I think it’s a smart move for you to meet the appraiser at the inspection to be proactive instead of reactive. Kudos to you.

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Heather Ostrom February 28, 2013 at 8:14 am

I meant “to the point” not poignant … bleggh … before coffee posts and newborn brain mom fail. Enjoy your day Ryan.

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Paul Merican February 28, 2013 at 8:53 am

I am an Appraiser and an investor of many years, and have been on both sides of this scenario many times. If an Appraisal has actual mistakes, they should be corrected. What is usually not mentioned is that an Appraisal is not a fact. It is an opinion by a qualified, unbiased third party with no interest in the property. Like any qualified professional, valid opinions may differ. What one party (biased, unqualified, or even qualified) may think is comparable may not be the same as what another unbiased, qualified professional may deem as comparable- and I’m not talking about using REO’s as comps when the subject is a well cared for traditional sale. Another thing noted is that not all attributes or improvements can be adjusted for, as the adjustment amount should be backed by recent factual market data from the subjects market area. If no conclusive data can be found, an adjustment should not be made. If a house backs a major road, there is generally enough market data to make a supported adjustment. If a house backs a park/common area and then a major road, there may not be enough market data to make such an adjustment. In the currently rising market, what I see in the vast majority of rebuttals is biased third parties (usually not the client/intended user) who are upset they didn’t get their sale price/commission & then call it a “bad/low appraisal”. More than 90% of the time, they want the Appraiser to use excessive adjustments or superior sales (gated, etc.) to “bring up” the value in order to make their deal happen. If truly comparable sales to support the sale price are not there, they’re not there. All qualified professionals have their opinion on which way to perform their job (within professional standards) is best. When was the last time someone tried to change your professional opinion? I imagine they would need some pretty concrete evidence in order to do so. Thanks for listening, Paul the Appraiser from Scottsdale.

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Ryan Lundquist February 28, 2013 at 9:58 am

Great commentary, Paul. Thank you so much. You made some excellent points that everyone ought to read. I agree completely. This underscores the point to not try to appeal an appraised value when it is legit and there is nothing to appeal.

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J Bell February 28, 2013 at 10:34 am

Case in point. Move on, you are better off than trying to fight a fight you will not likely win. The next appraisal could very well meet your expectations. This has been my experience.

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Amy Arata February 28, 2013 at 12:18 pm

I had an appraiser call me to ask if a recent sale was a “flip” because he would give it lower value as a comp. He said that flips use lower quality carpet, etc. I assured him that my client did more than simply change the carpets and that he used materials of average to high quality. There wasn’t much convincing him that a flip is not inferior to an owner-occupied home that has lots of wear and tear. I have also had a home I rehabbed given a lower appraisal simply because I “flipped” it. There are those who think we aren’t allowed to work hard and make money.

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Ryan Lundquist February 28, 2013 at 12:30 pm

Amy, I’m sorry to hear that. I appreciate you sharing your story. A “flip” shouldn’t be penalized just because it is being sold to make a profit after being rehabbed. The big issue the appraiser needs to entertain is whether the house has been updated with quality material and workmanship. There is a bit of a stigma in the market sometimes for flips because of some bad apples not doing a good job, cutting corners and putting lipstick on the pig so to speak. A value should not be “cut” because a property is a flip. At the same time appraisers need to really look closely at flips to ensure the investor has done a decent job. There is definitely a spectrum of quality when it comes to flips in my market. Some investors do a great job while others sincerely don’t. The ones who don’t end up selling their homes for less because the market recognizes shoddy work in most cases. Good luck on your current deals. I hope you’re getting top dollar for top quality.

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Al February 28, 2013 at 1:43 pm

I’d like to congratulate you on the appraisal challenge form. If there is a valid mistake on an appraisal, then it should be corrected. Most Appraisers will gladly do this if it is pointed out.

As an Appraiser, I’ve strongly encouraged my clients to ignore an appraisal challenge unless the challenger includes detailed explanation(s) identifying why the appraisal should be challenged.

Unfortunately, none of the appraisal challenges I’ve received include any basis for the challenge. The challenge typically includes comps from a different neighborhood which the challenger claims supports a higher/lower appraised value. The challenger provides no explanation why the original Comps in close proximity to the Subject (and similar to the subject) should not be used as Comps.

The challenges have become so bad, that I have started charging a fee to review and respond to a challenge which has no basis. This is beyond the scope of the original assignment and a waste of the client’s time and Appraiser’s time. I fully support the submittal of a valid challenge, but the submittor of an invalid challenge should pay a fee for this review service.

On another note, I’d also like to address an interested party submitting info to the Appraiser. I encourage any interested party to provide any relevant info they have on the Subject property to the Appraiser. This info must be submitted to the Appraiser when the Appraiser begins the assignment and makes the first contact. If the Appraiser does not explicitly ask for the info, the interested party should volunteer their info. The Appraiser needs this info when they begin their research, not when they are doing the inspection.

The Appraiser will base their research (and Comp selection) on the available Subject info at that time. If the Appraiser’s info is incorrect (i.e. wrong GLA, year built, features, etc), then the Appraiser may have to re-do the research, Comp selection, Comp inspection, etc. This can be avoided by providing your info to the Appraiser up front. Any issues with the Subject property should be identified as early as possible in the Appraisal process.

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Ryan Lundquist February 28, 2013 at 1:50 pm

Well said AI. I’m glad you pitched in some really good thoughts. I think you’re right about most “challenges” in that the lender provides a list of 10 sales and says, “why didn’t you use these?” I had this happen last week actually. As you said, it’s much better to include details and reasoning instead of “sales” that are most of the time not competitive at all. Excellent point on providing information to the appraiser at the first opportunity possible (instead of waiting until after the appraisal is done).

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Ray February 28, 2013 at 7:17 pm

Nice article. I have an appraisal tomorrow on a property. One thing that I do not particularly care for is that the appraiser is located over and hour away from the property. Im in a large coty while the appraiser ia from a small rural town. They’ll likely already have their minds made up about comps when they come to appraise my property. I’m guessing the odds are small that they’ll come back to town ilover the weekend or early next week if I give them some supporting data of potential additional comps. Hopefully the appraiser is familiar with the neighborhood and the school district. If you go east, it’s a comparable neighborhood… If you go south, it’s the same school district but the neighborhood and prices are not as nice. It’ll be interesting. Thanks again for the article. Any advice you have for when I meet with the appraiser tomorrow?

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Ryan Lundquist February 28, 2013 at 7:45 pm

Thanks Ray. Appraisers are licensed to appraise anywhere in the entire state, so technically they can come from anywhere in the state. I do know appraisers who travel quite far since they are located in rural areas, so it’s possible to be competent. I just wanted to throw that out there for the sake of conversation. Ultimately you and I know it’s not a best practice or good scenario in many cases like this if the appraiser really doesn’t know the market.

If I were you, I think I would feel similar. I might suggest selecting properties you think are competitive and make notes on each property on what is similar and not similar. Also, print out a map of the area. Draw the neighborhood boundaries on the map as well as any other boundaries of nearby neighborhoods that are competitive or not competitive. Label them as such. If you know something changes in a nearby neighborhood (that impacts value) such as school district, draw that on the map too. This might help the appraiser understand how you see the market. I would recommend having a conversation with the appraiser on the neighborhood boundaries. Just be politely honest and say something like, “I noticed you were coming from out of the area, so I wasn’t sure how much you knew the market. I drew up a map that helped me market this property, so I hoped to share it with you. Can we chat for a sec?” Or however you want to say it.

Keep us posted how it goes.

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Ray February 28, 2013 at 8:38 pm

Thanks for the reply. I may just be paranoid. I’m assuming they’re competent and capable… For all I know, they could be in the area all of the time. Thanks again for the tips and advice. I appreciate it.

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darrell simon February 28, 2013 at 8:15 pm

Hi Ryan,

When I was appraising I was in the Bay Area (Mission Group Appraisal) so we may have done a few places in the same area… I don’t know how it is now but back then vis a vis about 8 years ago, I would go up to Sac from the Bay Area quite regularly!

I have seen the issue from the perspective of Appraiser, Broker, Investor and quite frankly? a lot of the problem starts with the Appraisal situation because of where the appraisal takes place on the chain of events regarding the sale. An appraiser has tremendous liability and responsability and….there are some great appraisers and some god awful appraisers. For example, I well remember the kid who came for a refi of ours….our property being a Victorian in a neighborhood of Victorians which should have been a clue? So when the appraiser went out of the hood for comps and called our Edwardian A contemporary…well I screamed at the guy who trained the kid and asked him why he is sending an obvious newbie to a property that was at least worth a Million (a no no) among other things. I am ashamed to say that I also asked him such delightful interogatives as “do your appraisers always wear shades at all times, snear and conduct themselves as though you are privaleged to have them present? (palm slap)

Here is the thing: Appraising being an opinion is not absolute. Because of this fact we are always in a sense talking about a range of values into which a subject property falls (of course not an average! a range) …. To be clear this allows appraisers to consider the condition of a residence, the updating, etc. No appraiser is capable of giving a value for a property like “that house is worth two hundred & thirty six dollars and ten cents!” What this means practically speaking is, if an owner, client, broker etc asks about value, or tells me that the value is low, I can always reconsider. Why? because…..my opinion about value is in a sense, an opinion about the range of values justified by my appraisal. I can see if my comps, adjustments and data on the hood, boundries, etc CAN in fact justify a greater value.

During a sale if the sales price is not outrageous and if adjustments are consistant in the comps…then maybe I can reconsider the range point of value for the subject property. Consider: If a person wants to purchase a house for 300K and all things being equal every house in the area (and adjacent areas) has sold at most for 200K…..this is an issue of value that pretty much cannot be reconsidered….If my comps are legit, and if data research does not point to a sudden rise in value, then the highest range of value in any comp can hardly reflect this sales price. On the other hand if I have 3 comps that fall between 275 and 300K then perhaps I can also maybe see if the comps are saying that a two car garage, a corner lot, etc make the properties’ value reflected better in a different comp, more similar to sales price.

My point here is that a good appraiser should have no problem reconsidering a change of value IF this value can be justified in the comparables & research. A bad appraiser often does a few things that I noticed in my experience: a) they assume that the value they adjusted for is absolute and not a point on a range of values….values that are all justified on a scale (superior, inferior, etc) depending on things that are not absolutely “knowable…” things like the value of an amenity, location, etc…which can vary and which the comps will show you if youhave good comps! b) Bad Appraisers often do bad research….screwed up boundaries, lack of understanding what the sales history, the amount of listings, etc allows one to deduce. c) Bad appraisers are also often emotionally immature and let ego dictate that the value he/she chose has to be right…Sound familiar to some of your horror stories?

often these appriasers are judgemental….Consider this scenerio and I bet Ryan has had this experience. Basically you go to house..we will call it house A which is clean, has a great pool, a jacuzi in every bathroom……and the owner happens to be a beautiful five foot seven blonde who tells you how she takes such great care of the house….And then we go to house B which has holes in the walls, garbage everywhere, the owner sort of shuffles around….. Which tells us absolutely nothing about which house is more valuable! I.e. curb appeal is for agents not appraisers….the kid who did my home mentioned “curb appeal” a few times in the report….It can be noted, but when it becomes a biase there are problems.

Anyhow I know this is a long post but this is an important issue Ryan brought up. In summary because value is not absolute any value can be looked at and there is in practice always a range of values for an appraiser to look at when utilizing the sales comparable approach…the approach used for many residential properties. It is a crap shoot but perhaps the first indication that you got stuck with a bad appraiser is the refusal to reconsider the value of an appraisal…In my case? this kid did not want to reconsider. I had to threaten his boss with a board compliant at which time I was given a refund….To be clear I did this because I did not want people, such as investors here, to be stuck with a shitty appraiser.

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Ryan Lundquist February 28, 2013 at 9:18 pm

Wow Darrell, that was quite a response. Thank you for the commentary. I appreciate your experience too wearing so many different hats in real estate. I see you are still in SF too.

You hit on some excellent points. I agree with you about the range of values. In fact, it would be great to be able to reconcile value in loan appraisals in such a way to say “Value looks good between $270-280K”. The diversity of sales does provide a range of values in most cases, though since the appraiser needs to select one point of value, there should be a good reason why value is reconciled to say $270K or $280K or whatever. It should be supported and the story the appraisal tells should make sense to the reader – and draw the reader to understand the conclusion.

Thanks for sharing. I guess I should take off my sunglasses during inspections…. :) (kidding).

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Patrick Olguin May 19, 2013 at 3:16 am

This is a timely article for me. We sold our home here in the Los Angeles area, in a market that is heating up quickly. It sold in ONE DAY for 6K over the asking price. The problem for us has been comps. Our part of town is so popular (near Whittier College, in the hills), that people basically don’t move. And as with many neighborhoods in foothills, the price goes up 10′s of thousands of dollars with each block that goes up the hill to the million dollar home a few blocks up. I knew we were in trouble when the first thing the appraiser said to our agent was a sarcastic, “Where did you get that price?” Easy – a buyer thought it was worth it. He seemed bent on “setting us straight” on what our home is worth. Other houses in the area are sold (pending, not closed) for around the same price for similar homes. So we have a case of perhaps half-a-dozen homes, all snapped up by eager buyers, who, in a true free market, are setting the prices (not the sellers), and they are all almost certainly doomed sales, owing to appraisers who either don’t know the area or don’t know what their doing.

Our appraiser glibly informed us we needed smoke detectors in the living, and near the kitchen. Anyone familiar with the fire code knows that is false. The appraisal came in 75K under the selling price. It’s almost certainly going to kill our deal, Quite frankly, I don’t feel like being cordial or polite with this idiot. I don’t see how you can have six houses, all pending for nearly the same price (same sq ft, lot size, etc.), yet are magically worth less because an appraiser is “reporting the market.”

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Ryan Lundquist May 19, 2013 at 5:56 pm

I’m sorry to hear about your situation, Patrick. The question at the beginning sounds like a red flag to me if it was sarcastic. I think an appraiser asking that question without a sarcastic tone gives the agent space and opportunity to provide support. Did your agent share any support to substantiate the price? Hopefully so. The buyer realistically may need to go with a different lender and then ask the lender to only send an appraiser familiar with your niche area. Best wishes.

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Eric June 13, 2013 at 1:22 pm

Ryan,

Thanks for your help in posting this. I have an issue where the appraisal value was fine but a time sale adjustment was applied to my comps that sold in December. They hit me for 3.5% or 7% annualized. Part of my problem is that half my town is in a flood zone that has had recent flooding and crushed the property values in that section. My house however is not in a flood zone and prices in those parts are increasing. I was told the stats they use cannot be broken down by sections of my town. I think this is unfair and taking away from the actual value of my house. Not sure the lender will care about my argument since I have no true way of proving this out. All houses of like quality, size and location have been consistently selling well but most of the comps are 6 months old. Kind of in a bind with this one. Do you have any insight?

Eric

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Ryan Lundquist June 13, 2013 at 1:33 pm

Hi Eric. It sounds like the appraiser gave a negative time adjustment. Is that correct? The adjustment was because of flooding I assume. The proof that your market would be increasing can be found with sales in your immediate neighborhood. Did the appraiser use comps from the area that is not located in a flood zone? Do these comps suggest an increasing market or a big value difference between the flooded area? If the appraiser used only sales in the flood zone, then provide some sales outside of the flood zone (in your immediate neighborhood or in a nearby competitive neighborhood) to help build your case. The difficulty is that if there are no recent sales (as you mention), it may be hard to prove that values in your neighborhood have not been impacted by flooding that occurred nearby. Are any active listings or pendings in you neighborhood priced higher than the flooded area?

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Ron Babitz July 28, 2013 at 6:54 pm

I have had several low appraisals this year, in once case, both realtors cut commission to get the deal done, then 4 weeks later, another appraiser calls me and says “I’m using your house as a comp on another house, why did it sell so low? Was the seller under duress or did the house have a major flaw?” I explained to him that the house ws in great shape, finished basement, lots of great tile work, the appraiser was stubborn. It seems to me a second appraisal should be allowed.

PS…the appraiser used a comp 8 months old even though others were available….

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Ryan Lundquist July 29, 2013 at 8:09 am

Sorry to hear about that, Ron. Each lender usually has an appeals process, though I’m guessing you tried that and the appraiser wouldn’t budge. Old comps can make an enormous difference – especially when the market is changing quickly. Thanks for sharing your story.

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Rob H August 11, 2013 at 7:57 am

We are in an area of average or value priced homes. The average home price is $250,000 to $300,000 and that is for a home on 0.4 acres with 3/4 bedrooms and 3 baths on 2800 square feet. The location is great for many reasons but proximity is probably the best. There are small pockets of larger homes build in the last 6 years on larger properties in the city which is very rare. We were lucky enough to find a 2.4 acre site on a dead end street. All the homes are new construction with an average build price of $700,00. Now to the problem. Since all the homes are new construction all the houses in our price range have never sold. Actually over the past 10 years you can see in the small pockets luxury homes that they were all built but never sold. The county appraises these houses for great amounts for tax reasons but because that is not a recent sale they are not used for a comp. There has been a few houses listed that never sold to which I found out was because they couldn’t get a decent appraisal. If the new rules call for recent sales of like homes in the same community how can one sell to start the process and get a decent appraisal? I have actually found out since that all the new construction is averaging 50% of the build cost for the appraisal. This is requiring everyone to come up with 50% down plus closing. How can one community reinventing itself ever get out of this vicious cycle? We are unfortunately stuck in it as we can’t get the appraisal we need to move forward. Any advice is appreciated.

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Ryan Lundquist August 12, 2013 at 10:02 am

Thanks for the comment Rob. If you are right that value is really much higher than the recent appraisals, there has to be a way to support the higher value. Are there any other competitive neighborhoods in your city or in neighboring communities? There has to be something comparable out there for an appraiser to use. After all, when your home and others on your street first sold and there were no other houses on 2+ acres on your street, appraisers had to use competitive sales somewhere for that time (unless all buyers paid cash). Appraisers do not have to use sales in the immediate neighborhood. If there are none, then appraisers need to find sales elsewhere. It’s obviously ideal if there are nearby sales, but that is not always the case. I would also be interested to see what type of a percentage difference there has been historically between typical subdivision houses and your community. I wonder if that percentage has kept pace in recent years (and what subdivision houses are selling for right now – This could help provide some context). This may not be relevant at all to your situation, but the market in some areas experienced a very significant decline after 2006, so I wonder if some owners are in touch with that. On that note it would be interesting to see which houses have tried to sell, and then talk to all agents involved as to why they did not close. If it is indeed because of bad appraisals, that is tragic. But I wonder if there are other reasons. You may consider finding a very experienced appraiser in your area and talking things over with the appraiser. Feel free to comment back. Thanks Rob.

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joyce December 3, 2013 at 8:50 pm

Here’s a good one. I haven’t tried to dispute it yet… right now I’m still in the simmering stage. I live in a townhouse corner unit. Units are back-to-back, so only the corner units have windows on two sides. Corner units also have more bedrooms, bathrooms, and overall square footage. Middle units are 2 br, 1.5 ba, 1500 sq ft, while corner units are 3 br, 2.5 ba, 1800 sq ft.
My townhouse was appraised at a value $5,000 LOWER than middle units sold only 2 months ago IN THE SAME BUILDING. Does that make any sense?

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Ryan Lundquist December 4, 2013 at 6:51 am

Hi Joyce. Thank you for the comment. I’m so sorry for your situation. What was the condition like on the other units? Did they have any premium upgrades too? There is always a reason why a smaller unit can sell for more than a larger unit if there is a big difference with the inside. Do the larger units tend to sell for more usually? That is often the case in townhouse developments, but I wanted to ask since sometimes the market favors one unit over another for some reason.

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joyce December 4, 2013 at 10:38 pm

Hi Ryan,
So kind of you to reply. Yes – the larger end units always sell for more. When the units were new in 2002, the average price difference was 30-40k. As for premium upgrades, I honestly don’t know about the comp because I haven’t seen the report yet. I am basing my information on what my broker told me. My broker called his rep at the lender today, and was told that the appraisal would be questioned. At least it’s a start. Thank you so much.
Joyce

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Ryan Lundquist December 4, 2013 at 11:14 pm

No problem at all. It’ll be interesting to see how it all shakes out. I would be curious to see what other model match listings are listed for right now in your neighobrhood. It’s a wonder why the value would be reconciled 5K lower if things like condition, view and upgrades are all similar – and of course if there is a hefty premium for your unit. There are always so many factors to consider, which always makes it interesting. Hopefully your agent will be able to put together a strong rebuttal. Feel free to share the document in this post too if it’s useful for you. Best wishes.

Jacob December 7, 2013 at 6:28 pm

Hello Ryan,

We live in NC, and recently had an appraisal done on our purchased lot and house plans. The house is a 2375 sq ft all brick with stone accents 2 story house with vinyl shakes for a craftsmen look. The house will have a full 1636 sq ft walkout unfinished basement. The house will have 4 bedrooms 2 1/2 baths and side load garage. The rest of the house will feature granite in the kitchen, tile floors in baths/laundry, carpet in bedrooms, and hardwoods everywhere else along with crown molding and rounded wall corners and archways. The back of the house will have a 12×20 deck, and covered a smaller covered front porch. The garage is 606 sq foot. The appraise used “builder cost estimates and appraisal files” for information and the numbers were: $24,000 opinion of site value(which is what we paid for the land), 2375 sq ft @ $95 per ft=$225,625, basement 1636 sq ft @$15 per ft=$24,540, garage 606 sq ft @ $20 per ft=$12,120, *As is value of site improvements(which were told is well, septic, permits, lot clearing, etc=$20,000. The total came to $306,300 for both house/land but our contractor was charging us $305,000 to build the house. After meeting with another builder who told us that was a fair price to build the house he brought to our attention the many inconsistencies and compared some recent appraisals he had done for houses he was building. He noticed the very low prices for both the basement sq foot price, garage, and the lack of evidence of value for both the front porch and deck which was on all of the appraisals he had. He also thought the $20k for site improvements was too low, and questioned why after the improvements were done the site value didn’t increase. We are wanting to get another appraisal but we know that the bank will only offer appraisals done through their people, and there is no guarantee they will accept the new appraisal. Sorry for the lengthy comment, we don’t know what to do at this point. Any help you can provide will be great. Thank you very much in advance.

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Ryan Lundquist December 8, 2013 at 5:59 pm

Hi Jacob. Thanks for the comment. Was this appraisal you described above done from the bank you are getting a loan with? Or was it a private appraisal you hired to get a sense of the market? You are describing the cost approach to value where the appraiser considers the cost to build as well as the value of the land. The other main approach that is commonly used is called the sales comparison approach. Instead of land value and the cost to build, this approach considers recent sales instead (or “comps”). What was the value of the sales comparison approach in the appraisal? That is probably going to carry more weight than anything with a lender.

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Jacob December 8, 2013 at 9:18 pm

Hello,

Thanks for responding, not sure if its ok to just answer with an email, but I’ll give it a shot. The appraisal was done by the credit union where we’re trying to get a loan through to finance our new construction. The 3 comps the appraiser put on the appraisal were strange as well. We we’re very confused with the adjustment portions, because two of the three comparisons only had 3 bedrooms instead of 4 like our plan, as well as one of the houses not even having a basement where our house will have a 1636 sq ft. full basement. The cost approach didn’t add up according to our contractor either, I hope the numbers that I provided weren’t confusing.

Thanks for the reply, Look forward to hearing from you,

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Ryan Lundquist December 9, 2013 at 5:24 am

The numbers weren’t confusing at all. I was just wondering how the cost approach and sales comparison approach lined up. I would be curious to hear what the credit union thinks of the appraisal. It sounds like you have some good questions for the appraiser to answer such as: Why were no 4-bedroom comps used? If no adjustment was given for the basement on one comparable, why? If a contractor and other sources are saying the house would cost more to build, why is the appraiser’s source of building data so different? If you have different and more relevant sales to provide to the appraiser, that would be a best case scenario along with maybe asking a few questions or pointing out certain things that puzzle you about the appraisal report.

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Kelvin January 22, 2014 at 10:52 pm

Ryan is there a professional board in California that takes complaints about appraisers?

We recently received an appraisal for a refinance. Instead of choosing comps from 20 recent sales from our subdivision, the appraiser picked 2 of 3 properties in nearby subdivisions. He ignored 2 sales around the corner (almost same location as us but on the next cul de sac) and 2 recent sales of the same exact model! All of these sales were in the last 3-6 months and were $70,000 higher than his final number ($905,000). I certainly can understand going outside the subdivision when you have nothing recent nearby, but that doesn’t make sense here.

So the way I see it he is seriously incompetent or otherwise deliberately picked the lowest properties he could find (within 1 mile rather than .1 mile) in order to tank the sale.

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Ryan Lundquist January 23, 2014 at 8:10 am

Hi Kelvin. You can contact the Bureau of Real Estate Appraisers in CA at http://www.orea.ca.gov to speak with someone. Were these comps you mention sold on MLS? Were they similar to your house? If there were no recent sales over the past few months, has the market changed to the point where listings are now priced lower than those higher sales? Many markets tend to cool off during colder months. These are key questions. A property can sell 70K higher very easily if it had a premium location or premium upgrades or sold at a better time in the market. It does of course sound puzzling why the appraiser would not use older sales in your subdivision and then find some newer ones elsewhere to meet the lender’s requirement to use sales within 90 days (if that’s what they had). But the answer to these questions is of course of equal importance. Feel free to comment back if you’d like.

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Josh March 10, 2014 at 10:35 pm

I’m looking for a little help with an appraisal rebuttal. I’m refinancing my home which I just completed a major remodel and addition. I paid for the renovation with cash and am hoping to get much of that back with the refinancing. However he appraisal came back low with the 3 comps being used coming from a. Different neighborhood than mine. The comps are 1 mile to 2.2 miles from my house. I have found comps much closer (even .1 mile away) that support a much higher value. The 3 comps used cross over a major highway putting the comps used in a very different neighborhood. My bank encouraged me to challenge the appraisal and I need to provide 3 new comps. My problem is I have too many to choose from. I really don’t know why the appraiser didn’t use closer comps, but my question is this. Do I use comps that are more close to my sq footage but a further distance away or use the closer comps that may be larger than my house? And by large, I mean they are 15% or less more square footage. The original appraisal used all comps with lower square footage than my house (3%-14% smaller.) For success I’m thinking I should use the houses most similar in sq ft to mine even if they aren’t the closest (even though they’re closer than all 3 comps used in the appraisal!) thanks, in advance, for your help.

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Ryan Lundquist March 11, 2014 at 8:22 am

Hi Josh. Great question. Did the comps in the neighborhood sell on MLS? If so, they are something the appraiser could easily and readily consider. If not, it can be challenging for the appraiser to really verify the sales and understand the nature of the transaction. For instance, a private sale could theoretically have included a Ferrari in the garage to help boost the sales price. Anyway, I recommend using competitive sales in the immediate neighborhood if there are some available (this means similar-sized homes), but also feel free to use some that are a bit further away too. The key is that all sales are truly competitive and come from similar neighborhoods. Would a buyer consider purchasing all of these “comps” if your home was not available? That’s what makes a good comp. A “comp” should be a substitute for the subject property. Sometimes when using sales that are too far away or even one street away, the different tract or street might actually have higher or lower values for some reason. If there are only sales in your neighborhood that are smaller, you might find an older sale in your neighborhood that is larger to help show that value is indeed possible at higher levels (if it is) and use other nearby sales that are similar in size too. You don’t need to provide 10 sales, but try to narrow it down to 3-5 at most. Is your lender asking you to do this all by yourself or is the loan officer assisting you at all?

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Josh March 11, 2014 at 8:39 am

Ryan, thanks for the quick follow-up! I really appreciate it. My lender is helping me a little, but I’m more passionate about this than they are. One of the comps I found does appear to be a private sale, so I presume I should NOT use that one. How big of a deal is it if a comp is two story and my house is one story but the square footages are comparable? Thanks!

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Ryan Lundquist March 11, 2014 at 9:12 am

The private sale can reinforce value. The most important thing is that the nature of the transaction can be verified. The appraiser (and you) would need to know the details. Appraisers should stick to MLS sales if they are ample though rather than use one Lone Ranger high sale (there should be a very good reason why a private sale is used if it was indeed the highest sale in the area – way above MLS sales). Unless you have details for the private sale, I suggest not using it. It is best to show comps that are the same design, though if the appraiser didn’t seem to distinguish between one and two-story properties in the report, it would seem fitting for you to share whatever you want. However, in real estate it’s always best to compare apples to apples so to speak.

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Krista June 19, 2014 at 8:43 pm

I know that this article was older, but I just had to post what another investor and I are going through now. We bought a property to flip in February. It is in a rural area, not many appraisers. The house was a HUD and they did their own appraisal in December. They gave us this appraisal when we went under contract. Now we are selling the property and the appraisal came in $35k less then contract price and only $15k over old appraisal price. However it was the same exact appraiser on both properties and he used 3 of the same comps on both appraisals with major discrepancies.

Discrepancies with the same exact comps:

1.
OLD NEW

* Site (Land) $0 + $14,400

* Basement/rooms below grade – $13800 – $44,830

*Barn – $20,000 – $30,000

*Net Adjustment – $19,200 (no land value added) – $23,670 (includes land value!)

*Adjusted Sales Price $275,800 (no land value added) $ 271,330 (includes $14,400 added for difference in land!)

Without any repairs made, without the $14,400 adjusted land value the old comp is still higher!! Just adding the correct land valuation to the old comp makes the adjusted sales price $290,200.

2.

OLD NEW

*Site (Land) $0 + $12,600

*Quality of Construction Adjustment + $57,600 + $43,200

*Net Adjustment + $14,680 (no land value added) + $7880 (with $12,600 added for difference in land!)

*Adjusted Sales Price $259,280 (no land value added) $252,880 (includes the $12,600 added for difference in land!)

Without any repairs made, without the $12,600 adjusted land value the old comp is still higher!! Just adding the correct land valuation to the old comp makes the adjusted sales price $272,280.

3.

OLD NEW

*Site (Land) $0 + $27,000

*Basement/Finished Area – $19,800 – $23,400

*Barn – $20,000 – $40,000

*Net Adjustment – $67,000 (no land value added) – $79,940 (with $27,000 added for land!! Almost $40,000 difference in same exact house!!!)

*Adjusted Sales Price $293,000 (no land value added) $280,060 (with the $27,000 added for land!)

Without any repairs made, without the $27,000 adjusted land value the old comp is still higher!! Just adding the correct land valuation to the old comp makes the adjusted sales price $320,000.

Plus took off the top 10% on listings for expected sales price when the median sale % to listings is 98% for last 6 months.

Very frustrated. At this point still no change to appraisal.

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Krista June 19, 2014 at 9:01 pm

once that posted the numbers jumbled.

1. OLD: $0 for site, -13800 for basement/rooms, -20,000 for barn, -19,200 with no land value
1. NEW: +14,400 for site, -44,830 for basement, -30,000 for barn, -23,670 which does include the adjustment for land!

2. OLD: $0 for site, +57,600 for basement/rooms, Net Adjustment +14680 with no land value
2. NEW: +12,600 for site, +43,200 basement/rooms, Net Adjustment +7880 which includes the land value.

3. OLD: $0 for site, -19800 for basement/finished, -20,000 for barn, net adjustment -67,000
3. NEW: +27,000 for site, -23,400 for basement/finished, -40,000 for barn, net adjustment -79,940

Again, same exact sold comps by same exact appraiser, 6 months apart.

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Ryan Lundquist June 20, 2014 at 7:32 am

Krista, the market could have changed of course in this time period, but that seems really doubtful. Even if values cooled off or changed somehow, it is shocking that these adjustments were not given before and now they have been given. Appraisers have to disclose in the report when they’ve appraised a particular property before. If this guy is paying attention (and actually doing the appraisals himself), this disclosure should have been made. I would think if he was aware, he would have been far more attentive to adjustments that were made or not beforehand.

My questions to you:
1) Have you reached out to the appraiser?
2) What sort of explanation have you received from the appraiser about the discrepency between both reports?
3) Are you positive it was the same appraiser who inspected the property each time? I know it was the same appraiser who signed the report, but did this appraiser actually do the appraisal?
4) Are there other sales to substantiate a higher appraised value?

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Krista June 20, 2014 at 12:40 pm

Ryan,

It is the same appraiser. He did disclose that he had done the appraisal in December, however I don’t think he thought we would have the actual appraisal on hand. This is a Colorado market, it is very stable.

We did not speak with the appraiser initially, we went through the lender. The lender has a chief appraiser, that looks over the appraisal and decides to forward it on the the appraiser for review/inclusion. The chief appraiser, even after viewing both appraisals doesn’t feel it warrants a 2nd appraisal.

The comps are not the issue, they are all over $300k, except one which is $257k (it only sits on 1.5 acres while we have 48 acres). Our contract price is $310k.

What is hurting us is:
1. The large adjustment difference in the same exact properties
2. The condition when this property was a foreclosure, had $30,000 estimate damages in plumbing, missing carpet, old tile, broken windows it was C4. On the new appraisal after the plumbing was repaired and $25,000 in cosmetic work was done condition in still C4.
3. The comp that has 1.5 acres only received $36,000 adjustment for the acreage, when this area is $1800 an acre. We received the $1800 adjustment on every other comp. The comps is less than a mile from our house.

If our adjustments were the same as the old appraisal and given C3 condition we would be at contract price.

We just found out today it will not be moving forward, we did not receive an explanation, although we will be asking for it.

There are only two appraisers in that area, even if we get a second appraisal I am not sure we will be able to get a fair one.

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Ryan Lundquist June 20, 2014 at 5:21 pm

Wow, what a crazy situation. I think you’re right that the appraiser probably thought you didn’t have the original appraisal. Adjustments in appraisal reports are supposed to be market-derived. In other words, how much would a typical buyer in the market pay for the different feature? That’s what the adjustment should be based on. So a basement is adjusted for what the market is willing to pay for the basement, and additional acreage is adjusted accordingly also. It’s very suspect that adjustments were significantly different, and that doesn’t look good for the appraiser at all. I am guessing you didn’t get any explanation from the original appraiser either. The key in your situation is going to be having sales and/or listings to help support your value. If the market is willing to pay those higher levels, there has to be support for that price either through a sales price or reasonable adjustments. Was the original appraised value legit? That’s another question.

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