There is nothing worse in the home-purchase process than a low appraisal. Not only does it hold up the transaction, but it comes at a time when the buyer has cleared many of the other major hurdles of the purchase process, such as prequalifying for the loan and negotiating the purchase price. Just when you can almost feel the house keys in the palm of your hand and envision moving into your new home, the appraiser claims the house isn’t worth what you have agreed to pay for it.
In September 2012, one in three real estate transactions had problems because of an appraisal, according to a study by the National Association of Realtors®. With sales prices rising, the situation isn’t quite as dire as it was then. But, even in the best real estate markets, homes sometimes fail to appraise for the amount the buyer has offered.
When dealing with a conventional loan, there is little a buyer or seller can do beyond requesting a new appraisal or informally challenging the one the appraiser dealt.
If your loan is guaranteed by the Department of Veterans Affairs, however, you have a bit more leverage – a process known as the reconsideration of value, or ROV.
Requesting a reconsideration of value is a team effort, so don’t hesitate to involve the sellers and both real estate agents in the process.
Look for Errors
Of course, the first thing both real estate agents involved in the transaction will do is check the appraisal for mistakes or omissions. Not all appraisers are as thorough as we would like them to be, and some mistakes are common. These include:
- The wrong square footage of either the home or the lot.
- The age of the home or the age of the homes considered comparable.
- Upgrades, such as energy-efficient improvements, not considered when determining value.
- Location. For instance, one home backs to a busy street and the other to green space. The latter will be worth more than the former.
It’s not enough to ensure that the information about the subject home is accurate. Check the appraisal’s comparable properties against their MLS data to ensure the appraiser’s information is accurate.
For instance, determining the value of your three-bedroom home by comparing it to a home he erroneously assumed had four bedrooms has a significant impact on the appraisal. As well, when all other factors are equal, newer homes are typically worth more than older homes. A slow, methodical check of the comparables may yield information that the appraiser didn’t consider.
Gather Supporting Information
While the buyer may have little knowledge of neighborhood history, the seller might. Neighbors talk, and it’s not at all uncommon for one neighbor to know the facts behind another neighbor’s decision to move. If that decision caused the home to sell for less, it’s significant information and should be passed on to the appraiser.
Some of the reasons homeowners take less than market value for a home include the need to move to a new city to take a job, a rancorous divorce and a death in the family.
If a house was sold “by owner” and it wasn’t included as a comparable home, consider jotting down the details of that sale as well.
Finally, if your real estate agent hasn’t already done so, ask her to run a new comparative market analysis on the property to see if more current sales support the amount you’ve offered to pay for the home
Get Your Lender Involved
The lender is the go-to party between the buyers and sellers involved in the transaction and the VA appraiser. The lender will transmit your supporting documents and an ROV request form to the original appraiser.
The appraiser is required by the VA to review any new information you submit and reconsider his evaluation of the property. Rest assured that there is oversight to ensure that a thorough ROV is performed. The appraiser typically has five days to complete the procedure and notify your lender and the VA of the results.
The results of the review are final and no further negotiations will be entertained.
Even if the appraiser doesn’t adjust the home’s value, you have other options to save the deal:
- Increase the amount of cash you put down on the home. This brings down the total loan amount.
- Ask the seller to decrease the home’s price. Sellers don’t like this option but, in reality, they will run into the same problem with the next buyer’s appraisal.
- Determine how much more cash is needed to close the deal and agree to split it with the seller.
A low appraisal doesn’t have to be a deal breaker, but it does cause delays and anxiety. Work with your agent and your lender to salvage the transaction.
Read More: realestate.com