Lender Home Appraisal Appeal

[gkeep84]

My wife and I recently had an offer accepted on a new home. The sales price and inspection points were agreed upon with the seller. We were quite pleased with the sales price as it was a good amount less than the comparable homes in the neighborhood.  Our mortgage was conditionally approved pending the results of the appraisal. We received the appraisal report a couple days ago and the home valuation is approximately $20K less than the agreed sales price. It reviewing the document our realtor and I noticed several problems with the appraisal. First, the report stated that no improvements were made on the home in last 15 years; however, the basement was professionally finished within the last 5 years. Second, a majority of the comps came from surrounding, yet dissimilar, neighborhoods. The only comp from the same street sold for more than $20K above our sales price. Speaking with the lender, our options are as follows (My impressions/thoughts are the parentheses):

1. Appeal Appraisal (rarely works according to lender)

2. Pay in cash the difference between the appraised value and lose any benefits for increasing the down payment (increased initial equity, lower monthly payment)

3. Split the difference with seller (unlikely due to the nature of negotiations and losing equity)

4. Get the seller to renegotiate sales price to appraised value (unlikely given the negotiations so far)

 

Has anyone had similar problems with appraisals in the past? Any advice you can share?

 

I understand that $20K might not be a lot in the scope of a home purchase but my wife and I are being very disciplined in our approach.  We have no need to move imminently but we found the home in a perfect location near work and proximity to family.  We have a lot of equity in our current home and were planning to pay off student loans and front load our daughters 529 with the proceeds.

 

 

[StarTrekDoc]

You're right about the options.   If you truly believe the comps are suspect, you can challenge it.

Typically, we would split the difference with the seller since neither party wants to see the deal go south.

Something appears off though -- you state is got great deal below market, yet appraisal still comes under that.   Also the negotiations appear to have been rough, which I translate as a low-ball offer on some type of distressed seller situation.

 

[hightower]

Appeal and use the basement reno as evidence. Try to provide documentation of the costs. Worth a try. Otherwise you have to try the other options or walk away.

[gkeep84]

Great insight StarTrekDoc. We do believe the comps are suspect and our realtor is requesting a secondary appraisal.

I may have over stated the deal. It was just about $10K off asking and we made a competitive offer given our interest in the location. It was around the same $ per square foot of other sales. It is one of the "smaller" homes in the neighborhood. Not sure if that would qualify as a low-ball offer given the home prices in the area (less that 2% of asking price).  Per our Realtor, the friction in the negotiations has been between the seller and listing agent about listing price and counter offers.

Fortunately, there are two other homes closing in the subdivision in the coming weeks that reportedly sold above our sales price (similar price per sq foot). The secondary appraisal will be held until those are hopefully complete as they should provide more realistic comps.

[Gamma Knives]

I'd try for #4. You may be unhappy but the seller is in a worse position. If you walk they still have to sell this house. Will the next appraisal with another buyer be any higher? You mention difficult negotiations so I'm guessing they don't have other buyers lining up. If you are using an agent don't let them convince you to just shell out the money. They want to make the deal happen and don't care about your $20k. If the seller won't budge then you can do a second appraisal if you want but ideally you should set it up so that you are making a concession to this; ask them to agree to accept the results of the appeal even if it is still below agreed price. You probably have more leverage than you appreciate.

[Dr. Mom]

Simply tell your realtor to drop the price to the appraised value.  You usually have a time contingency to do so in the contract.  Do not dawdle.  See what they say.  Did anything come up on the home inspection that could be taken into account as well? Good luck.

[q-school]

Coffee is for closers
Tell the other party the appraisal says they should lower the price. Even if you are willing to pay more, let the. Shoulder the burden. It’s got to be stressful for them as well.
If what you say is complete and accurate, then the appraiser should get a punch to the gonads. Apparently they don’t know how the system works.

[gkeep84]

I think this discussion highlights why physicians can struggle with certain aspects of finance:

Financially speaking, we should push our advantage since the appraisal came into our advantage (even if the appraisal is wrong). The only factor that matters is the cost.

Ethically speaking, is it right to push our advantage when we know the appraisal is wrong even though we would benefit significantly?

Every bit of my medical training has pushed me to do the right and ethical thing. Don't get me wrong, we would love to get the home for a significant decrease in price; however, I am not sure we would feel great taking advantage of a technicality. There are other circumstances on the seller side that make it a little slimy to take advantage of the situation but I would prefer not to share those.

[Dr. Mom]

Only you can answer the questions you pose above.  You are discounting the possibility that the appraisal is in fact correct.  Some improvements fall under maintenance and don't add to the value of the home.  Your realtor has a vested financial interest in pointing out to you errors in the appraisal because, of course, you are a rich doctor and can afford to overpay by $20K.  The bank usually requires the appraisal to protect itself.  If this appraiser is so bad, either the bank is using them on purpose to low ball their loans or hasn't figured out how bad they are.  From a distance,  I am concerned that you are being taken advantage of because you can afford it.  Ask for the price to drop to the appraised amount and see what the seller says.  This is a negotiation.  If they refuse, at least you tried and you can decide to pay it if you still want the house.

[q-school]

I’m not sure why you think ethics are involved. Bank will not finance because they have a paid prpfessional telling them the value of the house does not provide adequate security for their loan.

Don’t overthink it.

If you want to pay 20k more that’s fine. We are not commenting on the value of the house to you, simply the dollars involved. In the long run, as you know, the 20k is a drop in the bucket. But when you buy a house, the value generally is created in the purchase price. This is a financially oriented website. Answers tend to revolve around those aspects

Good luck.

[Dr. Mom]

I will remind you again that your contract likely has a specified time period that you can address the appraisal.  Make a decision or the contract may make it for you.  Good luck.

[Zaphod]

Just get it reappraised or have the appraiser fix their mistakes, if they made actual mistakes there should be zero issues. If there are then something else is the problem.

Also, you keep saying "similar sq ft price". How similar? What are these comps? Are they same size, amenities, sqft, etc....? If not then they will have known differences.

To me it sounds like your appraiser did a "google" appraisal, and you got a raw deal. Just fix that first. If it comes back similar then you have to deal with it by overpaying or making them a lower offer.