Recourse on low appraisal available to home buyers, sellers, refinancers

11/20/2011

WASHINGTON -- How does a home seller, buyer, or owner seeking a refinancing fight back when an appraiser -- often from another city and working for a low fee on behalf of a big bank -- wrecks the deal with a lowball valuation?

Disagreements over real estate values are nothing new, but agents, builders, and sellers say current market conditions -- plus recent changes in federal rules that effectively encourage banks to use in-house or affiliated appraisal management companies -- are magnifying the problem.

In a recent survey of members, the Massachusetts Association of Realtors found that more than half of agents said sales had been hampered by appraisals that came in low. Polls by the National Association of Realtors also have documented widespread frustration over faulty valuations, and the association ranks them among the major causes of contract cancellations.

Federal rules allow providing the appraiser with statistics on recently sold properties of a similar size, condition, and amenity levels in the immediate market area.

Sara Stephens, president-elect of the Appraisal Institute, the largest group in the industry, says "if you know there are comparable sales in the neighborhood" where the price was affected by a divorce, financial distress, or heavy seller concessions to the buyer, "make sure you call the appraiser's attention to" these factors.

Give the appraiser a list of the house's value-enhancing upgrades and improvements, including dates and costs.

Accompany the appraiser during the inspection and ask questions crucial to competency:

Where are you based? How long have you been in the business? What type of certifications and professional designations do you hold? Are you a member of the local multiple listing service -- an essential treasure trove of data for any accurate appraisal? Do you know local agents or brokers who can supply you with pending sales information and guide you on neighborhood price trends?

If the appraiser doesn't have good answers, a poor appraisal is much more likely. Alert the lender to your concerns as early as possible.

After the appraisal is completed, always ask for a copy to review -- it's your right under federal law.

If the value comes in low, check everything in the report, from selection of comparable values to the accuracy of property measurements.

If serious mistakes are present and the appraiser refuses to make corrections, appeal directly to the lender. Most have procedures for "reconsiderations of value."

Ask for a second valuation by a locally competent appraiser, even if that costs you more money.

Finally, if the lender stonewalls and the deal falls apart, consider filing a complaint with the state appraisal board. Such boards don't have the power to rewind transactions, but they can discipline, fine, suspend, or ban bad appraisers.