Should You Appeal A Home Appraisal
February 22, 2016
Owner, Josephs Appraisal Group, Inc.
How often have we heard – the appraisal came in below the contract price? The “comps” were “terrible” or the adjustments were “ridiculous?” The appraiser didn’t give the home owners credit for their beautiful new, green carpet, etc.? My question: was an appeal filed? Sometimes the answer is “yes” and sometimes it’s “why bother?”
As a partner in a large appraisal management company (AMC), I deal with value appeals every day. I certainly understand the “why bother” sentiment as I believe the industry success rate on value appeals is under approximately 15%. Furthermore, many appeals I review don’t qualify for a value change. Often times the real estate agent doesn’t understand the appraisal process, so appeals are poorly prepared or they’re without a fair basis for value reconsideration.
Approximately half of value appeals lack support for reconsideration; however, the other half may have support for a change based on material deficiencies – the reality is it may not be a fair fight. There can be a built in bias NOT to change an appraised value. Appraisers understand that there are potential negative outcomes associated with a value change. When an appraiser changes his/her opinion of value, most would perceive that as an admission of a mistake which could lead to consequences. An underwriter may determine that the appraiser is no longer reliable; a lender may remove the appraiser from their approved appraiser list; the AMC may determine the appraiser is no longer a trustworthy business partner taking him/her off their appraiser rotation. All of these outcomes could lead to a substantial reduction in revenue for the appraiser.
Quick story – about five years ago an appraisal was prepared by an appraiser on our panel. The home was located in “true” Arcadia with a contract price of $680,000. The appraiser used two great comparable sales within core Arcadia with both adjusting out to approx. $680,000. The appraisal also included two sales outside the core neighborhood boundaries, in communities with substantially lower property values – these two sales “comped” at about $600,000. Instead of placing all weight on the two sales within the subject area, the appraiser appraised the home at $640,000 and placed equal weight on all four sales. The appraisal ended up on my desk. I called the appraiser who spent the first 19 minutes of our 20 minute call defending his value. I asked that he speak to several Arcadia real estate experts and reevaluate the sales within core Arcadia – eventually, the appraisal was revised up to $680,000. All parties (lender, real estate agent, and seller) were very happy and the deal closed on time. Unfortunately, my lesson learned from this story is that I had an appraiser on my panel that was capable of making a $40,000 mistake. It would have been bad business for me to continue sending this appraiser assignments, so we removed him from our panel.
My recommendation is that real estate agents be proactive to avoid the appeal process all together – not reactive. Agents should educate themselves beforehand. Following are some quick tips:
- Speak to the appraiser before agreeing to an appointment.
- Make sure the appraiser is “geographically competent,” having the locational expertise necessary to complete the assignment accurately. Spend some time asking the appraiser about his/her neighborhood knowledge.
- Let the appraiser know you would like to meet at the property and spend five minutes discussing the sales and listings you think warrant consideration. In my mind, every agent is entitled to this interaction – it’s a part of professional appraisal practice.
- Hand the appraiser three, four or five properties that you think should be considered.
- Identify any transactions that you think were not indicative of subject value, such as distressed sales, sales of homes in poor condition, etc. You will have the most success discussing the sales that support your value AND the sales that you believe are not fair comparables to the subject property.
Last, be pleasant and professional – it will always help!
Jay Joseph is the owner and an active appraiser of Josephs Appraisal Group, Inc. established in 2003. Jay is a certified appraiser with over 20 years experience with extensive knowledge of the Greater Phoenix and surrounding areas. Jay is also a licensed Realtor and broker. To reach Jay visit www.JAGinc.com or call 602-955-4050.