The ins and outs of an appraisal dispute.

An appraisal can delay or even cancel a purchase or refinance transaction if it does not meet the lenders requirements. This can be a frustrating process given the steps already taken to obtain or modify your loan. This article will outline the steps that can be taken if you believe your appraisal came in low.
Appraisers are human and mistakes may have been made in some cases.
Options of What to do if you Believe Your Appraisal Came in Low
If you believe your appraisal came in low you can reach out to your lender and ask for a reconsideration of value: This involves pulling additional sales to support your dispute and providing information for any inaccuracies within the appraisal report. Your lender should be familiar with this process and it is suggested to get your local trusted real estate agent to assist you in this matter as they should be familiar with current market trends and data in your market.
Purchase Transactions: The buyer and seller can renegotiate the sale price with the buyer covering the difference in cash. In a "sellers market" it is often the case that the buyer will have to cover the difference between the appraisal and contract price. If the buyer cannot come up with the cash or does not want to they can exercise their "appraisal contingency" clause in the Agreement of Sale. This will cause the buyer to walk away from the transaction.
Refinance Transactions: The original loan terms provided by the lender are often based on an estimated buyer by your lender. You can either go with the new terms of the loan given where the appraised value is or you can dispute the appraisal by requesting a reconsideration as noted above.
Ask your lender for a second appraisal: This option is uncommon and it would need to be shown that there are serious and obvious deficiencies in the original appraisal. Most lenders are unlikely to approve a second appraisal.
How Does Your Lender Consider the Appraisal in Regards to Your Loan?
An appraisal is a vital part of your loan process and a point of protection for your lender. When an appraisal comes in lower than the purchase price or refinance terms it can be bad news for the all parties involved. Lenders and banks have loan guidelines and often refer to Loan-To-Value (LTV) ratios to determine if the loan will go through.
Example: If you are getting a conventional loan for a $500,000 home and the maximum LTV for the loan is 97%, or $485,000 and the appraisal comes in at $470,000 you will have to come up with the $15,000 difference.
What is a Reconsideration of Value?
A reconsideration of value (ROV) is a request to the appraiser to reconsider the conclusions found in the appraisal based on information not provided in the appraisal report or inconsistencies that are inaccurate within the appraisal. This can be started by contacting your lender and requesting this and working with your local real estate agent who are familiar with your market and can assist you in this process.
Example of what can be submitted with your reconsideration of value:
Closed/Pending/Active sales within the market that are potentially more suitable for use in the appraisal report.
Description of inconsistencies within the appraisal report including errors, misrepresentations, missing updates, etc...
Documentation proving any issues with the data within the appraisal report.
Remember that sometimes appraisers do make mistakes as they are human just like the rest of us. At Alternative Valuation Partners, LLC we are more than happy to take a second look at any issue that may be present within the appraisal report.
Steps to Take to Prevent a Low Appraisal:
Preparing for your appraisal appointment before it happens can be vital to preventing an appraisal coming in low. Below are steps you can take to prevent this from happening:
Make Your Home Clean and Tidy: The appraiser is at your property to observe the features, condition, and updates of your property. Keeping your house clean and tidy allows the appraiser to accurately observe these aspects of your home.
Take Care of Miscellaneous Repairs: Minor repairs such as missing outlet covers, damaged drywall, or a missing doorknob are best to be taken care of before the appraisal inspection. Minor repairs can delay your appraisal and cost more money as some lenders require these repairs to be completed prior to the loan being approved. In addition, necessary repairs often have a bigger impact on value versus the cost of repairing them prior to your appointment.
Have A List of Upgrades Handy: Not all items in a home are observable and laying out the repairs/upgrades completed on your home allows the appraiser to incorporate all the findings in the appraisal report and will give you the most accurate report possible. This can be a printed sheet or you can fill out Alternative Valuation Partner LLC's Home Owner Questionnaire.
Make Sure All Rooms, Buildings, and Areas are Accessible: Typically the appraiser is required to inspect all areas of the home including every room, the attic, the crawl space, the basement, outbuildings, sheds, etc... In addition, it is important that no one is sleeping in the home preventing access to a room. If the appraiser is unable to inspect an area of the home the appraiser may be required to come back out to inspect these areas which costs an additional fee to you.
Preparing for your appraisal appointment can prevent your appraisal from coming in low but even if you believe that your appraisal did come in low it does not necessarily mean the end of the road for you and your loan. As described, there are a multitude of steps that you can take.
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