Tips and Traps When Negotiating Real Estate: How Do You Challenge a Lender’s Appraisal?

How Do You Challenge a Lender’s Appraisal?

There are essentially two methods of challenging a bad (in your opinion) lender’s appraisal. The above example lists one: go to a dif­ferent lender, one who has some reason to see it your way.

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Arguing with a lender over the amount of an appraisal is a futile effort. Lenders are basically paper pushers.

They need a piece of paper to prove the borrower’s income, another to verify credit, and yet another to state the value of the property. They don’t really care much about the real world. Just give them the papers that contain the right information and the borrower has a loan. But if the papers don’t say the right things, the lender simply can’t (or won’t) act.
It’s a somewhat different story when a lender comes in with a bad appraisal. Short of changing lenders, which may or may not be a possibility, you need to get the appraisal changed. As noted, arguing with the lender over the appraisal is futile. You need to get to the level of the appraiser. You need to get the lender to request a reap­ praisal.

Unfortunately, this is not always possible. Some lenders adamantly refuse to reappraise. In that case, you will either have to be satisfied with a lower loan or go elsewhere.

However, other lenders will request a reappraisal. To get them to do this, be prepared to go to the lending officer and argue that the original appraiser made a significant mistake (such as appraising the wrong property, not considering recent sales in the area, or not even coming into the home or looking at the yard). A little begging might work too.

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If you get a reappraisal, it might cost you another fee. Of course, if you get a better appraised value, it could be worth it. Unfortunately, many lenders request that a reappraisal be done by the original appraiser, which means that you start off behind the eight ball. (You can request a new appraiser and some lenders will go along with you.) It’s only human nature that the original appraiser, in order to preserve his or her reputation, is going to come out determined to prove the original figures were right. (On the other hand, you might get lucky and have a different appraiser who has no axe to grind.)

Either way, you need to get the property prepared. Yes, it’s a good idea to get the house clean, mow the lawn, cut the shrubs, and plant some new flowers near the pathway. But, all of these items really don’t amount to a hill of beans when it comes to appraisal. What counts is the size of the lot and house, the style, the general condi­tion, and, most of all, comparables} (Remember, knowledge is king.)

That means that you need to do some investigating before the appraiser arrives. Work with one or more agents to find all sales of comparable homes in your area. Sales within the past six months are the most relevant, but if these are unavailable, go back further.

Pending sales of homes (if you can find out the price) are also help­ful. Get documentation of sales from a real estate agent (a printed list with an agent’s office logo on top is usually enough). Also, take the time to go to each of the places and take a picture. It really is true that a picture is worth a thousand words. If the appraiser sees that the comparable looks just like your home, he or she is going to be hard pressed to deny it as a comparable. Thus, when the appraiser arrives, you will be well armed.

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Be sure you’re there to meet the appraiser. If you let him or her do it alone again, you might get the same negative result.

I suggest you remember the first rule of negotiating—make sure it’s business, not personal. Be nice to the appraiser; don’t be offensive by telling him or her what a miserable job he or she did on the first appraisal (even though it may be true).

If the appraiser wants to remeasure the house (as most will), go along and chitchat. But be sure you present your list of comparables, with their square footage, number of rooms, floor plan, location, style, and, most importantly, sales price. Hand it to the appraiser personally and, if possible, go over each one.

Most appraisers are honest, and if you’ve done your homework and were able to find comparables to justify your price, they will admit, “. . . maybe I overlooked these.” If they accept your comparables, you may be in good shape. If they don’t, you can complain to the lender again, although, as noted earlier, it won’t do you much good.

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Your documented complaint to the lender about an appraiser who won’t change the price even when con­ fronted with comparables won’t do the appraiser any good either. Appraisers count on referrals from lenders and lenders want to make loans. If the lender suspects an appraiser of making and then hiding a mistake, that appraiser could spend a lot of time searching for new business. Appraisers know this and it’s a great motivating force to correct an improper valuation.

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Because of the rise in value of most properties during the last few years, many lenders have told appraisers to be more conservative. They don’t want to make loans that are too high. If the appraiser has a choice between two figures, it may be the lender who insists the lower figure be taken. There’s no fighting this kind of logic.

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A final word must be said regarding the cost of appraisal. Today, it’s running in the $300 to $400 range. A reappraisal, as noted above, might cost you a second fee with no guarantee of a better result. However, it might be possible to split the costs. While the borrower/buyer normally pays for the initial appraisal, it wouldn’t be unreasonable to ask the seller to pay for a reappraisal. After all, it’s the seller’s property value that is now holding up the transaction.