Appraisals, How do we Dispute

7 Replies

We are waiting for an appraisal on a house we have for sale and under contract.  I am afraid the appraisal might come in below our contract price.  This is because it's already happened with a previous buyer.  That contract ended up falling through for reasons completely unrelated to the house, so we never tackled the appraisal that had just come in.  This is a 600 sq ft house, and there just aren't comps that small.  I feel like we are getting the short end of the stick because of it.  This is the second buyer willing to pay this price.  And the house started off with multiple offers in the beginning.  I don't know how much our sq footage price should increase (all things being equal), if it's half the size of the next biggest comp, for example (not to mention better finish-out).  How can or should my realtor approach this if the appraisal again comes in low.  I'd like to feel better prepared, as I'm beginning to get angry in advance.  Thanks for any ideas or insight on this.  Btw, this time I did put out a comprehensive remodel/upgrades sheet.

Oh, and one other thing, is there a rule of thumb on a formula for % of price per sq ft, as the square footage gets less, or more - again, all things being equal.  How do appraisers adjust for this?

Hard to comp houses are dangerous.  Appraisals are a crap shoot in the best of circumstances.  With a hard to comp house its more like trying to win the lottery.  I've been burned playing this game.  IMHO your mistake was buying this house in the first place.

Appraisers normally adjust by size by applying an adjustment factor to the comps.  Say you're comping a 900 sq.ft. ranch w/o basement to a 1000 sq.ft ranch w/o basement. and the 1000 sq.ft. house sold for $100K or $100/sq.ft.  The appraises chooses an adjustment factor for the size.  On appraisals I've seen, this is about 33-50% of the per sq.ft. price.  So, the adjustment would be, say, $50/sq.ft.  Multiple by 100 sq.ft. difference to get an adjustment of $5,000.  So, the adjusted price would be $95K.  The adjustment is less than just the size difference because 100 sq.ft. can be achieved by just moving a couple of walls a foot or two.  The plumbing, electric, bedrooms, etc, are still about the same.

Now, that's for comparing pretty similar houses.  Sounds like you're trying to compare to houses more than double the size of yours.  That's more than just stretching a wall a foot or two.  That probably implies much more significant differences, such as number of bathrooms.  Number of bedrooms doesn't directly affect appraisals - that's covered by the size adjustment.  But bathrooms will.  A 600 sq.ft. house is tiny, especially if its in a neighborhood where all the other houses are 1200 sq.ft. and larger.  Around here that would have likely been a scrape candidate.

Another factor is the floor.  Ground floor footage is worth the most.  Second floor footage maybe half of what ground floor is worth.  Basement footage very little.  Ideally comps are the same style as the subject.  If not, the adjustment is that much more complex.

Do you have a copy of the appraisal from the failed deal?  What about when you purchased?  What do those say?  Is there a specific item that is causing the low value?

All the appraisal I have been involved with recently used a $30/SF cost for difference above a certain amount. Meaning if my house was 1000 SF and the comp was 1050 SF there would be no adjustment. If my house was 1000 and the comp 1200, there would be a 200 SF x $30 adjustment. In your case if your house is truly 600 SF smaller than the comparables, based on the math above you are at $18,000 less. Then other factors affect it, acreage, bed/bath count, etc. 

The best way to combat an appraisal is with your own comps, however it sounds like you don't have any. You may be stuck on this one. I had an 816 SF flip and determine s after the fact it was too small to do. Just very few comparables to be confident it would sell/appraise.

Edit to ad: price per SF seemed to mean nothing in my appraisals. I had a house sell for $320k with tons of interest (sold Day 1). It appraised at $295k. If I used the average $/SF of his comparables, it should have appraised around $315-318k. Basically my house for some reason needed to be the lowest $/SF. He also only adjusted my house up a couple thousand $ for having an attached 2 car garage verse one comp that had no garage... that annoyed me.

@Jon Holdman  and @Brian Pulaski , thanks for the great information.  So seems like the upshot is, I probably have to just take my lumps.  It's not the end of the world, but a good learning experience.

Actually, in my experience, smaller homes fair alot better than larger homes when figuring dollar per sq ft.  So, I wouldn't count your little house out just yet, but dollar per sq ft is just one of the measures that appraisers use.

I would start with a bullet point list of attributes about the house, repairs, upgrades, and so forth.  Do a little of the appraiser's homework for them.

If you know the community and the differences between floorplans, share that knowledge with a small summary.  EXAMPLE:  Our house is 824 Sq Ft, and the last recorded sale was for a 910 sq ft home, and the only difference in the floorplan was an added 1/2 bathroom.

If an appraiser can attribute the space to something he/she can put a value on, it may fair better for you.  In that same example, it may mean a $4K deduction from the 910 sq ft comp to account for the bathroom value.

Also, go to tax records and look for any FSBO or other recorded sales that did not go through MLS. Appraisers use MLS comps because it is easy for them. However, it doesn't mean they CAN'T use other comps. If you find any recent sales (within the last 6 months) that support your sales price, print out the info and give it to the appraiser.

Lastly, leave a copy of the contract showing the agreed purchase price, and attach a note summarizing how many offers you received, and what they were for.  This will speak to the demand.

You may not be able to be face to face with the appraiser, so you can leave it for him/her in that case, but if it is your house, there is no reason why you can't require that you be present for the appraisal.

@Cara Lonsdale , thanks so much for your response.  That is super helpful.  I would love to take these proactive steps.  I have already put a two page document in the house with every upgrade - which is pretty much everything inside and out, broken down into sections of the house.  I am hoping the appraiser will pick this up, and tried to put it somewhere obvious.  So you're telling me that I can leave a specific note to the appraiser?  I wasn't sure whether that was "allowed" or frowned on, or ...  Do they actually not usually have the contract price, so they know what they are working towards??  I would love to leave a note explaining the multiple offers as well.

Originally posted by @Kathryn Bowden :

@Cara Lonsdale, thanks so much for your response.  That is super helpful.  I would love to take these proactive steps.  I have already put a two page document in the house with every upgrade - which is pretty much everything inside and out, broken down into sections of the house.  I am hoping the appraiser will pick this up, and tried to put it somewhere obvious.  So you're telling me that I can leave a specific note to the appraiser?  I wasn't sure whether that was "allowed" or frowned on, or ...  Do they actually not usually have the contract price, so they know what they are working towards??  I would love to leave a note explaining the multiple offers as well.

 It really depends on the appraiser.  Some welcome the info because they don't have to do as much when they go back to the office.  Others won't even look at it.  So, it will really be a coin flip.

If this project was a recent rehab and you have a complete budget of expenses, the appraiser will definitely look at that as that PROVES value beyond the average comp.  

Keep it short and factual (don't get wordy or sentimental). As I stated in my previous post, provide comps that the appraiser may not look for (non-MLS) . Does Zillow give you a favorable zestimate? If so, print that out and provide it for the appraiser.

Best of Luck to you!

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