Tips and Traps When Negotiating Real Estate: What Do You Negotiate When a Lender’s Appraiser Says “No!”?

What Do You Negotiate When a Lender’s Appraiser Says “No!”?

I had a neighbor who, after her husband’s death, decided she wanted to sell a vacation home that she and her husband had owned. She talked to a few brokers, got a feel for the market, and put it up for sale for $550,000. (It was, indeed, a very nice place on a river in the Sierra foothills of California.) To be fully prepared, she called up an appraiser recommended by one of the brokers and paid for a formal appraisal so that she could tell any prospective buyer how she justified her price.

I lived nearby and happened to be there when the appraiser showed up. It was a nice warm morning and we walked around the property talking about real estate. After he had duly measured the lot and the house and written up the details of the home, we talked price. He said that in his opinion the property was not worth more than $230,000, tops. He had run a search for “comps” in the imme­diate area going back to the previous year and there hadn’t been any recent sales. Therefore, he had gone to another development some 10 miles away and used it for comparables.

I pointed out to him that he was dealing with recreational prop­erty. That meant that demand for it was sporadic. A year or two might go by with no sales, then there might be one or two dozen sales in a matter of months. Further, I pointed out that the develop­ment he had used for comparables was not near the river and the community was not nearly as desirable.

He pointed out that the houses were of a similar age, design, and size. That was good enough for him. Since, after all, it wasn’t any of my business, I demurred from saying more.
My neighbor, however, came to see me shortly afterward and told me how terrible the appraisal was. She had anticipated that the property would come in at the full price she was asking. Now, she was afraid she’d have to ask much less.

I suggested that she continue to ask her full price and when she got a buyer, let that buyer go to a lender and see what the appraisal was. She did just that, and after a little over a month she accepted a full-price offer. For a mortgage, I suggested she tell the buyer to con­ tact a local small bank with only three branches that did business in the county. I told her that since they were located nearby, they might be more aware of the true property values. She agreed and informed the buyer, who followed through.

The new lender sent out its own appraiser. Again, I was home when she came by and again I walked the property with her. I mentioned the previous appraiser and noted that he had used comps from a development some 10 miles away. I also pointed out that I thought they were invalid and suggested that she should instead use comps, no matter how old, from the present area. She agreed and found several sales 18 months earlier, all above $500,000. She sent in her report and my neighbor got a good loan commitment for 80 percent of the full sales price.