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