Six steps for responding to a low refinance appraisal
You鈥檝e just had a property appraisal done so you can聽, but the value is much lower than you expected. It鈥檚聽discouraging, but don鈥檛 despair; you have options to keep the refinance process on track.
By knowing what goes into an appraiser鈥檚 opinion 鈥� and having a plan of action ready in case the聽final figure disappoints 鈥� you鈥檒l be primed to聽correct any errors and perhaps聽get your valuation聽raised. Here are six steps to help.
1. Ask for a copy of the appraisal report
Property appraisers use a variety of criteria to determine your home鈥檚 value, including size, age, condition, recent sales, current comparable listings and amenities. You鈥檒l see boxes checked for these items on the聽, which most certified appraisers use.
Double-check the measurements for your home鈥檚 square footage, as well as the number of bathrooms, conforming bedrooms and living spaces. If you spot errors, let your lender and appraiser know immediately.
2. Analyze which comparable listings were used
Appraisers rely on recently sold homes and current homes on the market to help determine your home鈥檚 fair market value, which is the price a potential buyer would reasonably pay.
Sometimes, though, there aren鈥檛 enough of these similar listings, known in the trade as 鈥渃omps,鈥� in your neighborhood. An appraiser聽might have to look further back, past 90 days, to get the data, says Bill Kilzer, a certified property appraiser in Denver.
Your home very well might be worth more than what comps sold for six months ago, but that聽might not be reflected in today鈥檚 appraisal if there are no recent sales for comparison. Kilzer says that鈥檚 why he also looks at current listings to gain a more complete value picture.
3. Get an advocate
If you think an appraiser used outdated or inappropriate comps, contact a local real estate agent who works in your neighborhood and knows it well, says Tom Salomone, president of the National Association of Realtors and broker/owner of Real Estate II in Margate, Florida.
鈥淎 Realtor will be able to provide you with a fair market analysis of your home,鈥� Salomone says, adding that most real聽estate agents聽provide the service for free. 鈥淚f you鈥檙e seeing that an appraiser used comps from six months ago and the Realtor finds comps sold within 90 days, then you have a right to ask why more recent sales weren鈥檛 used.鈥�
4. Consider the feedback objectively
If an appraiser gave you a lower-than-expected value, take the time to understand why. Have the comparable properties used in the report been updated but yours hasn鈥檛?
Take a critical look at your home: If paint is obviously chipped or some spaces need updating, you can鈥檛 really blame the appraiser for docking the value. If other listings that have recently sold or are currently on the market all have newer roofs and yours is 20 years old, it鈥檚 unlikely your value will budge if you don鈥檛 replace it.
On the other hand,聽the appraiser will make adjustments in your favor if your home has amenities or upgrades the comps don鈥檛 鈥� a pool, for example, Salomone says.
It鈥檚 understandable to feel聽a little upset if someone else doesn鈥檛 think your home is worth as much as you do. But an appraiser鈥檚 opinion is meant to be neutral, and you have to try to be objective too. (Easier said than done, right?)
5. Understand the subjective and objective factors involved
It鈥檚 worth noting that some subjective items factor into your home鈥檚 value. For instance, if an appraiser rolls up to your home and it鈥檚 cluttered, it鈥檚 dirty and the exterior looks like it鈥檚 falling apart, it makes a bad聽first impression. And while you might not mind an older home that backs to a busy street, appraisers typically see that as a drawback.
And there are objective factors, too. Let鈥檚 say you added two bedrooms in the basement. If those basement additions were made without permits and don鈥檛 conform to your local government鈥檚 standards, it can hurt your home鈥檚 value, Kilzer says. That鈥檚 bad news if聽you spent considerable time and money on improvements you thought would pay off down the road.
You have limited ways to address factors like unpermitted work, but a little bit of effort聽can go a long way toward addressing subjective factors. There are聽聽to whip your property into shape if you end up repeating the appraisal.
6. Ask for another appraisal
Most lenders are reluctant to order another appraisal without good cause. Appraisals are costly 鈥� an average of $300, Kilzer says 鈥� and they take time.
However, if you have documentation to show there are better comparable properties to measure your home against, or if your lender used an appraisal company that鈥檚 not local, call your mortgage broker to discuss the possibility of getting a second opinion.
You鈥檙e also not tied to one lender and you can try the process again with a different one, experts say. Keep in mind, however, that appraisals ordered for government-backed loans (such as FHA-insured mortgages) stick with your property for at least six months. If you鈥檙e pursuing that type of refinance loan, you鈥檒l have to wait six months before trying again, Kilzer says.
Bottom line
If you鈥檙e thinking about聽, do as much prep work as you can ahead of the appraisal to enhance your home鈥檚 value. And if the numbers don鈥檛 match what you had in mind, keep the lines of communication open with your mortgage broker to figure out workable solutions that will move everyone toward a successful closing.
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