Expert Appraiser: Trusts, Divorce, Property Tax

Reader Asks: I received a low appraisal, and the square footage is lower than an older appraisal. What can I do now?

Your situation is certainly frustrating, and is likely more common these days. A survey by the National Association of Realtors found that more than 25% of their agents had lost a sale, or had to re-negotiate, due to a low appraisal. It is quite possible you have the same situation. Are there any other readers who have had this happen to them? If you are going to have an appraisal on your home, check out the free useful tips on my website blog.

It may be helpful to go back to the older documents, and examine them closely. It is always important to get a copy of past appraisals done on your home. Dear readers, write a letter at once to your lenders or mortgage brokers, and get a copy for your files today. Even old appraisals.

Appraisers know that a truly measured home will seldom agree with the printed square footage. This is due to many elements: measuring wheels are historically inaccurate, digital measuring devices can be miscalibrated, etc, as well as differences in measuring technique. Often the legal SF is based on the plans, which would show the size of the original wood-framed structure, before the exterior stucco is applied.

Let’s review the current appraisal and make sure it is the best that it can be. Do you agree with the sales used for the report? Are any of the sales “fixers”, “bank-owned”, REO’s , or short sales? These may not be truly reflective of the market. Yes, they may be nearby, but the local market may have two tiers of sales. There may be a range of low-priced, highly motivated sales of REO’s, fixers, and short sales. And then a range of higher sales, what I call “full-value” sales. These are well-maintained homes with nice landscaping, away from busy streets and commercial areas, that are attractive to buyers who do not want to shell out for repairs and updating.

I think it is very cost-effective to hire a local appraisal expert to review the file, from their desk, for $100.00 or so. They can see if your bank appraisal has problems, and you can plan a strategy together from there. If it costs a few hundred dollars, but allows you to save four or five times that much in the first year, it is a good investment, don’t you think?

In today’s quiet market, I often seek out more accurate sales from slightly further away. I also widen my scope with the range of living area. This takes more time, but more accurately reflect the true market value of the home.

A bit of background on the current appraisal process may help explain things for you. Often the major banks use an Appraisal Management Company (AMC) to select their appraisers. This is supposed to remove the temptation by the bank officer to push value, to gain greater commissions. But many national AMC’s run their selection process incorrectly, choosing the lowest-priced appraiser, instead of a local expert, in order to make a greater profit from your appraisal fee.

The bank gets takes your appraisal fee, say, of $350.00, and takes a processing fee of $75.00 off the top. They give the balance to an AMC, which also takes a fee of $75.000. The $200.00 balance, in this case, is used to find an appraiser. If they can find a lower-fee appraiser for $150.00, even one from 40 miles away, they profit even more.

Often the bank is co-owner of the AMC, and they get part of that profit back. So the bank has made $100, without even writing up the loan. And if the appraisal value comes back low, they have little incentive to fix it. Many local lenders and credit unions do not use this kind of system, and you can often get a higher-quality appraiser.

If the older appraisal has a sketch that shows the exact same dimensions as the public record, it is possible that the appraiser either did not measure the house, or he modified his data to conform to the public record. Both of these are wrong, but that does not help you today. At this point, your main concern is trying to get a re-finance, and the costs and time involved in mounting an attack on the original lender and appraiser, is beyond the scope of my expertise.

I hope you find this helpful, and a cost-efficient method to get your loan. Please keep us posted on your process.