The Home Appraisal Blues

One of the worst things that can happen for any home seller is catching the home appraisal blues.  You have navigated nearly every pitfall imaginable to get to this point.  Getting your house ready to hit the market, keeping it “show ready”, brutal negotiations, inspections and repairs.  By this point in the transaction you should be cruising to the closing table with the scent of that hard earned equity wafting in to your bank account.  Then BAM, you get the call that the appraisal came in short (cue the horror movie music).

This is such a depressing moment for any home seller.  Disbelief sets in, then comes the rage.  You are looking for someone to blame, the appraiser must be an idiot, my house is worth so much more than that, (s)he has no idea what they’re doing!

But is your house really worth what the buyer was willing to pay?  The reality is, maybe not.  You see, appraisers HAVE to be able to justify your homes value with other sales.  Appraisers know what they are doing.  They have made a career out of valuing properties every day all day.  They have likely done this hundreds if not thousands of time.  And no matter how much you want them to come in at value, they have to go by the book.

So what happened?  How did you get here?  Chances are, you were the most expensive house based on the comparable sales.  Key word here is comparable.  I didn’t say the most expensive house in the neighborhood.  Yes there are probably other houses that have sold for more money that maybe aren’t as nice, but those houses were not comparable.  An appraiser can ONLY use houses that are truly comparable to yours.  It’s a formulaic approach that is highly regulated and they don’t deviate from it.  So if you are basing your value on anything other than recent closed sales of comparable properties, you are very likely to wind up with the home seller appraisal blues.

The reality is, you have to sell your house twice for every transaction (that has a mortgage involved).  It doesn’t matter if the buyer was out of their mind to pay that astronomically high price you were asking.  They have that layer of protection built in to the equation that protects them from making a crazy decision and over-paying for a property.  You see, the house is collateral for the bank.  They simply won’t let a buyer make a bad buy and put their money at risk.  So that means you have to sell your house to both a buyer and an appraiser.  And guess what, the appraiser isn’t going to fall for anything.  They are using rigorous formulas and guidelines with absolutely no emotion involved at all.  It’s math, plain and simple.

There are occasions where an appraiser may make a mistake.  Many neighborhoods have sections that are unique and valued differently, so bad comps may have been used while other good ones were overlooked.  Their square footage measurement could be off, thus affecting adjusted values.  Features of your home could have been overlooked and accounted for (Not necessarily your finishes, we are talking about larger scale items, like a covered patio, third car garage, etc).

What are the steps to contest the home appraisal as a seller?  

  1. Reach out to the lender and find out what their protocol is to submit an appraisal review.
  2. Provide as complete of a package of information as possible.  If you have the means to place a value on things you want considered, include that. That would include receipts or line item breakdown of costs and an all encompassing list of upgrades
  3. Make sure you focus on the “WHY”.  If you think an adjustment to your home or the existing comps should be considered or a different comparable sale should be used, you need to have a solid argument on why that is.  Remember though, you will need to have a compelling argument.  it can’t be a house 5 miles away in a different neighborhood.

There are a lot of common misconceptions about what drives the value of your home when it comes to the home appraisal.  Here are a few things to know that you may not have been aware of.

  • All of your upgrades don’t necessarily ad value (or at least as much as you think they do).
    • Here is a response we received from a recent appraisal we contested specifically discussing upgrades in the subject property (our listing) compared to the comps used in the appraisal. The backstory is that the subject property was much nicer than the other comps in the appraisal, so we contested asking those upgrades to be more heavily considered in the value.  Here is what the appraiser stated in response:
      • “In general, improvements made to a property do not result in a dollar for dollar contributory value and in some cases may have little to no contributory value. This is particularly the case when the improvements are not necessary or are part of maintenance and upkeep of a home. Items such as different paint colors or different backslash may help the marketability of the property, but do not warrant line item adjustments. Cost does not equal market value. Every difference between the subject and comparables does not warrant an adjustment. Adjustments are not made for cost differences; rather they are made to reflect the market’s reaction to these items.”
  • Active or pending will not wind up on the appraisal.
    • If you don’t know what the final sales price is, then you have no idea what the true value of that property is.  If it’s not sold, it is highly unlikely you will see it on the appraisal.
  • Number of rooms (specifically bedrooms) do not always mean a higher value.
    • In the case mentioned above, our subject property also had an extra bedroom than the majority of other comps.  It was a 4 bedroom and most of the others were 3 bedrooms.  The appraiser gave no added value for the extra bedroom arguing it made no difference to value or salability in that neighborhood.
  • Your best chance to successfully contest an appraisal is by submitting new comps in your neighborhood to be considered.  It is extremely difficult to win this battle without new data to be considered. 
    • In order to have new comps considered, the following criteria will need to be accounted for.
      • Location: proximity to the subject property is an extremely important factor.  If you go too far away (especially out of the neighborhood) you will have a very tough time getting that comp to be considered.
      • Number of stories: If you have a 2 story home, good luck getting them to look at a 1 story.  They are just too different in many ways to be considered a like kind comp.  If they have 2 stories they can use, they will.
      • Year built: If the home is much newer or much older, they will likely not consider it.  Appraisers do not like to have to adjust for depreciated value based on age.  They will avoid doing it if there are other comps to use.
      • Construction type/features:  If you are in an older area where they type of construction varies greatly, i.e. pier and beam foundation compared to slab, the appraiser is always going to look for “like kind” comps that are similar in construction.  Other factors may include
        • Siding vs brick/stone
        • Roofing materials
        • Garage vs. carport
        • Driveway materials: Concrete vs. gravel
        • Decks vs. covered patio(s)
      • Square Footage:  Appraisers are going to try to keep the comps within 10-20% of the square footage size of the subject property if possible.  Beyond that becomes much more difficult to compensate for adjustments based on size.  If your house is 2,000 sq/ft and you and you are trying to use comps that are over 2500 sq/ft the appraiser is likely going to shut that down altogether or throw on a substantial adjustment that will bring that value down significantly any way.

Hopefully this helps you beat the home seller appraiser blues.  Remember, pricing is the most important factor when selling a home.  Check out our other blog articles Tips for a Successful Appraisal and It’s All About the Comps to get ahead of any issues with your homes value.

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