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:
- Write it down: Make sure you write out your thoughts in a logical manner so the lender and appraiser can listen to your reasoning.
- Novel: Don’t write one.
- Filter Thyself: Leave name-calling and finger-pointing inside your head.
- 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).
- 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.
- Be humble: You might be right, but you could also be wrong.
- 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.
- 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?”
- 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”.
- 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:”
- 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).
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
{ 35 comments… read them below or add one }
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.
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.
This post will be a great complement to our podcast tomorrow, which will be featuring Ryan.
Nice work!
Thanks so much. I appreciate being on the podcast too. I’ve been loving listening in every Thursday.
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.
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.
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.
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.
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.
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.
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).
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.
Thanks, Ryan, for taking the time to share this. Very helpful, especially coming from an appraiser!
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!
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.
Thanks for your encouragement Karen. I appreciate that.
Spectacular work again Ryan … this is a phenomenal post. I think prepared, poignant, and polite are the best points to make.
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.
I meant “to the point” not poignant … bleggh … before coffee posts and newborn brain mom fail. Enjoy your day Ryan.
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.
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.
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.
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.
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.
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.
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).
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?
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.
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.
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.
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).
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.”
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.
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
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?