When the appraisal doesn't make the value you need for a loan there are only a few things you can do.
- One thing you can do is to provide the appraiser with other sales that you think they ought to consider. Sometimes an appraiser will miss a sale that they should have considered. If you are working with a mortgage company or real estate agent, have them ask the appraiser to consider other comparable sales.
- Question the adjustments. Appraising is not an exact science; it is an opinion of value. Ask questions like, ‘Are the adjustments consistent from sale to sale in the adjustment grid? Are the adjustments done on a per square foot basis? Or lump sum.’ The appraisal report needs to explain the basis of the adjustment. Where did the adjustment come from, market data? Or the appraiser’s opinion with no market support for the adjustments.
- Are the adjustments clearly communicated? Appraisers have professional standards they must follow and if the report is not clearly communicated they are in violation of USPAP (Uniform Standards of Professional Appraisal Practice). Standard Rule 2-1 states
USPAP Standard 2-1
Each written or oral real property appraisal report must:
a) - clearly and accurately set forth the appraisal in a manner that will not be misleading;
b) - contain sufficient information to enable the intended users of the appraisal to understand the report properly; and
c) - clearly and accurately disclose all assumptions, extraordinary assumptions, hypothetical conditions, and limiting conditions used in the assignment.
- Come up with the money to make a larger down payment.
There are two things to remember about appraisals. Even though you paid for the appraisal, you are not the client, (the lender is the client, this is a function of the rules set forth by the FDIC), but you are an intended user and if you can’t understand what the appraisal says, you have the right to ask for and receive more detailed information.
The second thing to remember about appraisals, you are paying for a professional’s opinion. The opinion may or may not be accurate but it is the opinion of that professional appraiser. Ideally, the opinion is supported with market data but not always. If the adjustments are the appraiser’s opinions then they need to clearly state that it is their professional opinion and not derived from market data and state why market data is not used. This is a USPAP Standard Rule. (see above)
Written by Gaye Rutan, Appraiser
