Just before year end I told you that we were refinancing our house again, this time to a 15-year, 4.25% fixed-rate loan. The goal was to drop our interest rate by another .75% and save about $1,600 dollars per year in interest payments.
Unfortunately our house, which had dropped $55,000 in value the last time we refinanced, has dropped a whopping $35,000 more in the last 7 months.
Why? because a few foreclosures and distressed sales in our neighborhood have tanked prices. In fact, not a single non-distressed single family sale has taken place in the last 6 months within one mile of our home.
We got the news on Wednesday of last week and were taken back by the sheer magnitude of the drop. I discussed options with our lender and he suggested we verify the appraisal accurately reflected our house’s worth. If we thought it didn’t, we’d have the ability to ask the appraiser to reconsider his valuation.
Now, this is generally a long-shot. Most appraisers do a reasonably thorough job evaluating a house, and any appeal must be firmly rooted in facts the appraiser either did not consider or incorrectly considered. Of course, appraisers are human and can make mistakes, so diligence is important.
If you’re in this situation, here’s the steps you can take to challenge your appraisal. We made it through Step 4 and determined that the appraisal accurately reflected the value of the house, so we decided to look into other options, and then ultimately cancel the refinance altogether.
Steps to Appeal a Real Estate Appraisal
Step 1: Verify the appraisal contains an accurate representation of your home. Check things like square footage, number of bedrooms and bathrooms, whether your house has a deck, lot size, etc. Make sure that every aspect of the description of your home is correct.
Step 2: Verify that the comparative properties (called comps) used for valuation basis are accurately described. For instance, make sure that a house that claims to have a deck actually has a deck. This can be done by examining tax records and driving or walking by the property. If a house claims to have a deck but actually doesn’t, the appraiser may have made an incorrect adjustment to your valuation based on that information.
(Steps 3-on will likely require the assistance of a real estate professional, such as a Realtor)
Step 3: Verify that the comps chosen are the best possible compartive properties to your home. Remember that recency of sales is going to be one of the most important factors. Real estate agents will have access to multiple listing services that can show all the properties that closed within the last 6 months, and will be able to search the database by region. While appraisers will consider active listings for informational purposes, they are a last resort when it comes to property valuation. Just because your neighbors house is listed 10% above the last sale doesn’t mean the values in the neighborhood have increased proportionately.
Step 4: Verify that the comps chosen were not sold under distress. Distressed sales will likely bring a lower value than a traditional market sale. Even if the appraiser chose foreclosures, however, if the overwhelming number of recent sales in your area were foreclosures, he may use that as a basis for accepting the lower indicated value.
Step 5: Prepare a written challenge. In the challenge you will be writing back directly to the appraiser, so respect, clarity, and brevity are key. If you found deficiencies or errors in the report, create a list of those items you would like taken into consideration that should affect the value. Call the appraiser and ask him for the best way to send over the information — it could be as simple as sending an e-mail.
Under new regulations, lenders are required to select the appraiser for a purchase or refinance to eliminate potential bias in the appraisal. This can have the affect of the lender selecting an appraiser who is not familiar with the territory. This can lead to poor choices in comps or failure to consider all aspects of the property. It is always worth examining the appraisal and ensuring it is built on a solid foundation before resigning yourself to the lower amount.
What do you think? Have you ever challenged an appraisal? Were you successful? Tell us about it!
(photo credit: omaromar)