Solution To Low Appraisals

Do you own research if the appraisal comes in too low

Much to their chagrin, many buyers, sellers and owners are finding out that, in today's down market, their homes aren't worth what they thought. At least, not in the eyes of the professionals hired to tell lenders what the places could fetch on the open market if borrowers failed to make their payments.

In a perfect world, the value of a property is what a ready, willing and able buyer will pay for it. But the housing market is imperfect at best. For one thing, values rise and fall with the tides, maybe not on a daily basis but over a period of several months. For another, market forces do not act as freely as they should. For example, buyers sometimes will pay whatever the seller asks just to get their hands on a house they've come to love, whether or not the price has any basis in reality. And in a few instances, buyers and sellers intentionally conspire to inflate the agreed-upon price to defraud the lender and line their pockets to the tune of thousands of dollars.

Consequently, an appraiser, a trained valuation expert who can give the property the once over and give the lender his or her opinion of its true worth, is needed. But the art of appraising is just that, an art, not an exact science. And even though those who practice it hold the fate of sellers, buyers and refinancers in their hands, they are not gods. Indeed, they are fallible, just like everyone else. If you honestly believe yours has made a mistake, you can appeal his finding to your lender.

Start by finding out whether yours is a full-blown appraisal or an electronic one. More and more lenders use automated valuations, particularly in the home-equity sector, to speed up the process and cut costs. But they are notoriously inaccurate. AVMs, or automated valuation models, are good enough to give lenders an overview of local housing values, especially when they are lending only 75 percent of what the house is really worth. But they just won't do it on a house-by-house basis, when lenders are putting up 95 percent or more of the home's value.

Whether you are seeking a home-equity loan or a primary mortgage, if your lender is relying on an AVM, ask to have your place valued by a human being who actually looks at your specific house, compares it to others in the neighborhood, checks out the community and does all the things an appraiser is supposed to do. In most cases, lenders will bow to your wishes, especially if you are willing to write the check to cover the several hundred dollars a full appraisal will cost. If a real, live appraiser is responsible for a valuation you think has come in too low, your appeal becomes a little more problematic -- if only because you are dealing with human beings who, unlike machines, have feelings. So to keep your appeal from becoming an exercise in futility, do it with as much finesse as possible. "When a lender reassigns the appraiser to take another look at a house," a real-estate broker whose name is long forgotten once told me, "it's like telling him he screwed up the first time. How many people are going to admit that?"

Of course, you can always ask for a second opinion from another appraiser. But you'll have to pay the freight a second time, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5 percent higher than the first. In the appraisal game, anything less is considered an acceptable difference. Besides, even if the second appraisal is far above the first, it's the lender, not you, who gets to pick the appraisal on which the loan is based.

While this may seem as if the cards are stacked, you can even the playing field by suggesting, firmly but nicely, that the appraiser assigned by the lender erred and requesting, again nicely, that he be asked to take a second look. And you can grease the wheel a bit further by doing some of the appraisal spadework on your own. It may take time and effort, but it could pay off in the long run.Your job is to search out "comparables" the appraiser may have missed the first time around.

A comparable is a property of the same size and style in the same location and with the same features as the one being appraised. To determine a fair-market value for the subject property, an appraiser looks for recent sales of several comparable properties. Normally, however, they limit their search for "comps" to the multiple-listing service (MLS) operated by the local real-estate association. And when they do that, they may not be looking at the entire market. Even though enough sales pass through the typical MLS that an appraiser should have little trouble finding comparables, not every deal goes through the system. Independent brokers who are not MLS members make many of them, and some are made without the help of an agent, MLS member or not. Then, too, some MLS members don't put all their listings into the system. As a result, half of all transactions in some major markets occur outside the MLS. Your job is to find them. And to do that, you'll have to comb the land records at the local courthouse. Remember, though, that you are not just looking for sales in the same general neighborhood. You want at least two, but preferably three, of the same style -- ranch to ranch, for example, not ranch to two-story Colonial -- size and features. Also, sales should be no more than six months old, and the more recent the better.

If your search bears no fruit, turn your attention to the comps cited by the appraiser. Sometimes they are not really comparable. While the appraiser is required to go inside the subject property and measure every room, he does not have to do the same with the comps upon which he bases his valuation. He may have been inside one or even two, if he has appraised those properties in the past. But more often than not, his knowledge of them is based entirely on their description in the multiple-listing system or the public-land records. Often, those narratives are far from accurate. Sometimes, they're incomplete; other times, they're nothing more than blatant advertisements. A "large, wooded lot" may have but one tree, for example. And wallboard is hardly a fair comparison to your lovely wood-paneled rec room with its wet bar and fireplace.

The trick here is to find as many differences as possible in your favor, differences the appraiser may not have known about or failed to consider. In other words, try to find gray, fuzzy, undefined, superficial values where the appraiser can say you are right and he is wrong. One item often overlooked is the age of the comparable house; another is the size of the lot; and a third is room sizes. Of course, this kind of detective work requires that you visit comparable properties with pad, pencil, tape measure and a sharp eye for detail. It also helps that they have cooperative occupants who will let you snoop around. But if you tell them what you're about, they should be more than willing to cooperate.

Most appraisers are aware of their shortcomings so that if your pilgrimage turns up major differences, they should be willing to re-evaluate their original valuation."We're not arbitrary," says one expert who claims he has no problems changing his opinion based on new findings. "We're open-minded within reason. After all, we're only as good as the data that's available to us."

Lew Sichelman has been covering real estate for more than 30 years. He is a regular contributor to numerous shelter magazines and housing publications. Sarasota Herald Tribune.