Hey there! Question about home appraisals and what to do when your selling price doesn’t match the buyers loan appraisal I’m selling a house I rehabbed. Did the deal and rehab all in cash. Had an offer within 24 hours and purchase agreement made out for $240k. I did a contingency with the buyer allowing her to sell her home first. That happened and she is closing on September 11. The appraisal happened yesterday and the buyer’s loan officer called her and said they won’t have it back for a week because it’s with the underwriter but that he saw the number and it was $207k. The buyer said she can go to $215k. I told her I’m not canceling the deal on this phone call but my initial response is that the price is $240k. Comps show about 215-225, but there isn’t a true apples to apples comp in the county. Can I ask for a reappraisal? Any chance the underwriter approves a $240k purchase price? Do I carry a note on the difference? What will carrying a note for $25k do to her ability to get her mortgage? Cheers!

@David McClain as a sellers agent I always attend the appraisal, bring my own comps, and list of all upgrades and ages of things. Ages of things are important as that’s what gives value. I almost always have comps that appraisers miss as well. At the end of the day it’s that particular appraisers “opinion”.

Appraisal came in $33k low what are options?

Account Closed

Rental Property Investor · Escondido, CA · Member since 2018 · 268 posts · 137 votes

6y

@David McClain, I'll be interested to see what some others chime in with. I've been on the other end trying to buy a property that appraised low. I think you can challenge or ask for a reappraisal, although in the 200-230 price point, it is difficult to think it would come up 33k. That being said, appraisal is not a science, and one unique thing about RE as an asset class is that there is not an apples to apples comparison as you mentioned, so it is possible that a second appraisal would be closer to the mark you're looking for.

2 Reply

Steve Morris

Real Estate Broker · Portland, OR · Member since 2019 · 4k+ posts · 2k+ votes

6y

Well, think you're options are:

1) Ask buyer for more down since a low appraisal affects loan amount

2) As you noted, do part carryback.

3) As far as a new appraisal, lender ordered it and it's usually lender's option to accept or change the numbers. I think you showing up with your own appraisal may be met with some derision at the bank.

4) Drop price to appraisal (least savory)

Did the PSA have a "must meet/beat appraisal" or "buyer to obtain loan at rate/terms acceptable" clause? Might affect next steps.

1 Reply

David McClain

OP

Cincinnati, OH · Member since 2018 · 6 posts · 6 votes

6y

I haven't seen the appraisal yet. I wish I had been there with a list of the upgrades. Not to sell the appraiser but to make sure he knew what was done to the property. It was a to the studs rehab and has a lot of new mechanical, plumbing and structure that can't be seen, did he know the windows are brand new? Did he know there is a sprinkler system, 100% new plumbing, 2 laundry hookups, 80% new wiring, brand new 200 amp service and box. I know their process is pretty straightforward but I don't know how they weight any of those items. All speculation at this time. Im not looking to take my own appraisal to the lender, but to have them order another because I feel the appraiser may have missed a bunch of things - I will be able to verify that once I see the appraisal.

Yes the purchase agreement did have an appraisal contingency.

I'm just trying to spitball some scenarios while I wait.

1 Reply

Dan H.Pro Member

Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes

6y

I get low appraisals on all of my refinance appraisals associated with my BRRRRs. It is a common problem in my market that the refi appraisals are more conservative than those associated with a purchase. I appeal these low appraisals with mixed success. I have gotten an $80K increase on a really bad appraisal. I have gotten very small increases on some appeals of poor appraisals. In all cases I believe I had made solid case for valuation above what the appraisal indicated.

Your appraisal is associated with a sale. In my market, appraisal associated with a sale try to justify the agreed price. I do not know if it is similar in your market. My experience from my various appeals is to get a new value you have to justify it. Some of the items you list are nice but they do not add much value and likely none as far at appraisal goes. For example, an appraiser assumes the plumbing is in fine shape. If it is not, there is often a credit for the plumbing issue or it is addressed prior to closing. Your new plumbing likely has no worth with respect to the appraisal.

My recommendation is see if you can find comps that justify your value. If you cannot, your value is likely high and that the value reflected in the appraisal is the retail value. if you can find comps that justify your valuation, use that information to appeal the appraisal.

If your RE is worth less than the agree price (appraised at less after looking at all appeal options), then options include lowering the price or getting the buyer to bring additional money to the closing to bridge the gap in the financed amount (I think a buyer who does this is usually a fool as they are paying more than retail and have been informed of this by an impartial 3rd party).

Good luck

3 Reply

Mark H. Porter

Investor · SC NC, VA · Member since 2020 · 1k+ posts · 756 votes

6y

You say there are no comps so you need to review the appraisal to determine what it was based on. That would give you points of contention. Remember, appraisers don’t know everything about your property nor can they read capex renovations to know whether did theM or the prior owner

2 Reply

Account Closed

Contractor · Mickleton, NJ · Member since 2020 · 114 posts · 112 votes

6y

i worked as a real estate lender for 15 years. fighting the appraisal is truly an uphill battle and if you do happen to get a higher valuation from a new appraisal the results of both appraisals will likely be averaged. options have been stated above...lower price obv works as well as having the buyer put more down. since 2008 the appraisals have been very conservative. wish you luck.

1 Reply

Phillip McDonald

Pueblo, CO · Member since 2020 · 24 posts · 20 votes

6y

You indicated that the comps show $215,000 to $225,000 and the appraisal is at $207,000. It seems unusual that an appraisal on a recently renovated property would be below the range of the comparables. It is also unlikely that you will get an appraisal above the range of the comparables.

Your best option challenging the appraisal would be to provide better comparables, not just higher comparables. If you can find comparables which have also been recently renovated and the appraisal did not include comparables which were recently renovated then you can make the case that the appraiser did not use the best comparables available and did not give sufficient consideration to the condition which is a significant factor which has an impact on value. If other comparables have also been recently renovated at the high range of the indicated comparables ($225,000) it is unlikely that the appraisal would be above $225,000. However, an appraisal of $207,000 seems very unusual for a recently renovated property if other properties which are truly comparable are in the range of $215,000 to $225,000.

You need to see the appraisal to really understand how best to present a challenge. The underwriter is definitely not going to adjusted the $207,000 appraisal to $240,000, the underwriter is not going to adjust the appraisal at all. Even if you ask for a new appraisal it is not likely to appraise outside of the range of the indicated comparables. I think you can only make a decision on how best to proceed after you have reviewed the appraisal unless the decision is to accept the appraised value and consider alternatives like a seller carry second, if the lender will allow this.

6 Reply

Caleb Heimsoth

Rental Property Investor · Durham, NC · Member since 2016 · 7k+ posts · 7k+ votes

6y

@David McClain if she has an appraisal contingency she can cancel the deal, it doesn’t matter if you don’t want to cancel the deal.

It’s really up to the buyer what they want to do. You can simply say the price is still 240k and they make up their mind

2 Reply

Jay HinrichsBusiness Member

Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes

6y

if she is getting an FHA loan that appraisal is now in the system I think for 6 months.. going to be hard to get a non conventional loan buyer to come up.. they usually dont have the money even if they wanted to.. and seller carry back seconds are tricky.. most lenders will balk at those.. there are times were you can over improve a property.

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April L. Williams

Wholesaler · Wilmington, NC · Member since 2020 · 46 posts · 13 votes

6y

I'm a newbie here, so please excuse me if I sound like I don't know what I'm talking about, simply trying to learn. But, could you possibly rent this property out just until property value goes up, and then sale it??

2 Reply

David McClain

OP

Cincinnati, OH · Member since 2018 · 6 posts · 6 votes

6y

Thank you everyone for the replies and input. I do understand she can back out at anytime now.

Renting is possible but not a great option because with the plan forward I’ve laid out I need the cash back out. It could take over 10 years for the market to appreciate $33k. Yes I would have the rental income making up that gap, but if I pull the equity out through a loan of my own, then I have expenses and making up that gap takes a long time. The margins aren’t there for this to make sense as a rental.

1 Reply

Shayla L Otolorin

Investor · Atlanta, GA · Member since 2017 · 3 posts · 7 votes

6y

You can challenge the appraisal if you can find recent comps that the appraiser did not use. Just make sure that the sales are from the last 6 months and within 1 mile of your property. I just dealt with this issue with an appraisal I ordered to help me with the list price of a flip. I challenged with better comps and the appraiser raised the appraisal by a measly 3k but hey it's still something. Additionally if it is an FHA lender for the buyer the appraisal sticks for 6 months like someone else mentioned. If they can't make up the difference, which likely they can't since it is FHA, then you can terminate this contract and wait for a buyer with a conventional loan. I find appraisers for conventional loans are less conservative than FHA/VA loan appraisers.

3 Reply

Lee Bell

Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes

6y

You as the seller don't really have any way to challenge the appraisal, officially anyway. The lender is the appraisers client, not you, and not the buyer. But, the buyer could supply better comps if they exist, and ask for a reconsideration of value from the appraiser. It would have to go through the client, the lender.

Most of the time a purchase will appraise at the contract price. Most of the time there are comps to support it. Sometimes there are not, and it is a pain for the appraiser because now they have a reconsideration and a pain in the ***.

1 Reply

Russell BrazilBusiness Member

Moderator

Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes

6y

Ask the buyer to switch lenders (assuming its not FHA). I do that when I get low appraisals, works quite often.

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Steven Zoernack

Investor · Sarasota, FL · Member since 2020 · 12 posts · 11 votes

6y

If the value is "truly" higher, and the appraiser "truly" made a mistake, which happens...... call another appraiser and let them know what happened, ask them where they see the property valued at, and relay that info to the lender and ask them to question the bad appraisal. Give them compassions to forward to their appraiser. They may even consider using the appraiser you found if he's on their appraisal list. If all else fails, find a new lender.

2 Reply

Account Closed

Canoga Park, CA · Member since 2020 · 84 posts · 57 votes

6y

Counter with 222K she'll counter with 220K

0 Reply

Chris Pasternak

Real Estate Broker · Pueblo, CO · Member since 2013 · 368 posts · 303 votes

6y

I initially had a very long thought out post with many suggestions but I really just want to offer this:

Are you using a Realtor to sell your house or did you just want to save a commission?

Why did you accept a home sale contingency in 24 hours on the market?

2 Reply

Ryan Avila

Rental Property Investor · Napa, CA · Member since 2016 · 69 posts · 75 votes

6y

Originally posted by @David McClain:

I haven't seen the appraisal yet. I wish I had been there with a list of the upgrades. Not to sell the appraiser but to make sure he knew what was done to the property. It was a to the studs rehab and has a lot of new mechanical, plumbing and structure that can't be seen, did he know the windows are brand new? Did he know there is a sprinkler system, 100% new plumbing, 2 laundry hookups, 80% new wiring, brand new 200 amp service and box. I know their process is pretty straightforward but I don't know how they weight any of those items. All speculation at this time. Im not looking to take my own appraisal to the lender, but to have them order another because I feel the appraiser may have missed a bunch of things - I will be able to verify that once I see the appraisal.

Yes the purchase agreement did have an appraisal contingency.

I'm just trying to spitball some scenarios while I wait.

Residential appraisals are not based on the amount of money into or improvements made to a property. They are simple based on the $/sf of comps in the area.

Example, if you buy a house for $300,000 in a neighborhood where comparable comps sell for $300,000. Then you turn around and put $100,000 into it, it’s still worth $300,000 based on the comps.

Your best bet is to run your own comps, find some that support the price you believe the property is worth and ask the appraiser if they would consider adding those comps into their report.

3 Reply

Aaron Gordy

Real Estate Broker · Austin, TX · Member since 2012 · 1k+ posts · 1k+ votes

6y

@David McClain Getting the appraisal is the first step. It could be a bluff. Get the appraisal and the question the validity of each comp. Appraisals are opinions of value.

1 Reply

Mike Dymski

Investor · Greenville, SC · Member since 2016 · 5k+ posts · 13k+ votes

6y

I stopped buying hard to comp properties specifically for this reason. Ask the buyer get a new lender. Even then, be prepared for an appraised value below the price. Good luck...this is a tough situation.

1 Reply

Darius Ogloza

Investor · Marin County California · Member since 2018 · 1k+ posts · 2k+ votes

6y

If I understand the facts right from the OP: (i) there are no close comps in the area; (ii) the buyer cannot pay more than $215K and (iii) renting is not an option. I think the choice is sell for $215K or put it back on the market at $240 and wait for a cash buyer.

3 Reply

Bonnie LowPro Member

Lender · Asheville, NC · Member since 2016 · 1k+ posts · 1k+ votes

6y

If the comps are $215-$225k, it seems very unlikely you're going to be able to get it appraised for the 240k that you want. The appraiser might reconsider if you can bring comps that show the price range you're looking for. If you really want to hold out for $240k, you might have to move on to a different buyer who can bring more closing cash to the table. This isn't uncommon in a multiple offer scenario.

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0 Reply

Ben Haab

Member since 2017 · 36 posts · 24 votes

6y

Did you have other offers? Appraisers can take that into account.

I had an appraisal come in low on a VA loan and sale didn't go through. Relisted and did not allow buyers to use VA loan, got a 2nd buyer with a FHA loan and deal went through.

Appraisers are worse than car salesmen and politicians. They have a bad reputation for a reason...

1 Reply

David McClain

OP

Cincinnati, OH · Member since 2018 · 6 posts · 6 votes

6y

I don't need a 240 appraisal. I need a 215-225 appraisal and the buyer will bring extra cash to the table. She sees the value in the property and house that the appraiser doesn't see in his "formula". And the appraiser was a bit of a jerk and on the defensive before "Good morning" left my lips let alone waiting to hear what I was calling about. he just defended his position, told me I did a wonderful job with the house, but that I over did it. I didn't overshoot the neighborhood, there are plenty of 240k+ homes within a mile, but about 15-25% more sq ft or less than 15 yrs old so he won't use as comps. The difference in my house is the quality of finish and the amenities that these other homes don't compare too. I found a buyer who was willing to pay for that, it just ended up being a math problem with the cash to close.

The comps that were close as I could find were 215-225, which again is all I needed to close the deal.

In the end the buyer and I worked it out, but I learned a lot from the experience.

I accepted a home sale contingency so soon after listing because I trusted my gut that this buyer was the one who saw what this house was, not the comps of the neighborhood. This community is basically one City sized HOA - the beautification codes and the way the city keeps up with the streets and municipal services are such a high standard that you could compare homes on opposite sides of town if you wanted. In fact this buyer was on the other side of town but had been walking by the property with a friend the entire time I was rehabbing. I knew she was highly, no, extremely motivated to make this deal work out. Which in the end it did, things are still on track, we just had a little drama for 24 hours:). Out of respect for the fact that she is going to be homeless in 7 days (her house is closing in a record 3 weeks!), I didn't ask her to go to a new lender. She would incur so many expenses in renting and moving twice that would end up driving her top end lower and lower even if we could get a higher appraisal. Instead of taking the risk that she decide it's too much trouble or end up in the same situation, I reiterated the value to her in this home and showed her what she could buy for 215 or what she could buy for 240. We discussed how far she could comfortably stretch. I ended up coming down a little for her and everyone feels they got a fair shake. Perhaps I could have squeezed a bit more out of the deal with a reappraisal and dealing with the bank, but decided my time is worth more using that money on the next property.

Thanks everyone for chiming in!

Cheers!

2 Reply

Jorge Manzanares

Realtor · South Florida · Member since 2020 · 7 posts · 3 votes

6y

The only time I have seen a appeal for an appraisal overturned is when the appraiser didn't use the MLS and have it documented on the report.

Wish you the best of luck.

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Appraisal came in $33k low what are options?

Appraisal came in $33k low what are options?

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