Appraisal Discrepancies

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Appraisal Discrepancies

Dear Phyllis,

My wife and I are first-time buyers and have saved $80,000 for our down payment. Each of our parents is helping us with the remainder. Out of five offers, our $985,000 bid was the highest. We hired an inspector, and everything seemed fine until the bank’s appraiser decided our home was only worth $950,000. The seller told us that every offer they received was higher than the appraiser’s estimate, so they won’t drop their price. Therefore, we now have to increase our 20% down payment by $7,000 to make up the difference. It doesn’t make sense that the appraiser can appraise the home lower than all of the offers the seller received. How do you avoid appraisal discrepancies ? KD

Dear KD,

A little background: Lenders will lend based on the lower of the appraised value or the purchase price. In your scenario, your lender will grant you an 80% loan based on the $950,000 appraised value. There are so many reasons why an appraisal might come in low.

To avoid appraisal discrepancies, it’s best to be proactive. When I represent the seller, I email comparable listings and sales with notes indicating any reason why they are inferior to my client’s home. For example, perhaps the kitchen and bathrooms are less updated, the square footage is smaller, or the location is not as desirable. As the appraiser has not been inside these other homes, this information is helpful. It’s often prudent for the seller or listing agent to prepare a list of improvements that the appraiser may be unaware of, such as copper plumbing, new air conditioning, etc.

An appraisal is simply the appraiser’s opinion of a property’s value based on comparable sales in the neighborhood. In theory, the Dodd-Frank Wall Street Reform and Consumer Protection Act was intended to provide more reliable and consistent appraisals. However, what resulted was the influx of management company middlemen, who take about half of the appraiser’s fee, as well as a barrage of out-of-area appraisers.

As a result, I have had appraisers from Orange County drive up to appraise local homes. Nevertheless, each community has its own boundaries and nuances. For example, in some neighborhoods you want to be north of the main artery, while in others you prefer south, east, or west, depending on local demand and desirability.

You might ask your Realtor to review the appraisal for any glaring discrepancies. I have sometimes seen appraisers fail to make adjustments for proximity to freeways, high tension lines, etc. In this instance, you can ask the Management Company to request that the appraiser make corrections. Sometimes this will result in a changed value.