Ah, the reality of real estate today-another low appraisal. These are becoming more and more rampant and are the bain of every real estate agent's existence. On top of the added research, work, stress, and communication with the other agent and your client, what can be done with low appraisals?
First, a thorough review should be performed to determine if any mathematical mistakes were made when adding and subtracting the adjustments for the comparables.
Second, was the subject property properly 'bracketed' by the sold comps? By that I mean, did the appraiser use relevant comps, some of which were higher in price than the subject, some about the same price, and some lower in price than the subject?
Third, are the comparables the best comps to use? Were they all in the same neighborhood as the subject? If not, why not? Sometimes there just aren't enough comps available in the subject neighborhood. If the appraiser must search outside the neighborhood, then he/she should look for similar neighborhoods to the subject and adjust for location as necessary.
Fourth, are the adjustments made fair?
Fifth, were any distressed properties (short sales, foreclosures, HUD homes, bank-owned homes, etc.) used as comps? If so, did the appraiser disclose that fact and make an additional adjustment for the distressed sale, which almost always is lower than a non-distressed sale.
Sixth, is the appraiser from the area or out of the area? If out of the area, has the appraiser perfomed many appraisals in the subject's area?
Seventh, was the subject labeled as being in a 'declining market'? If so, that can be the 'kiss of death' and require a 10% down payment from the buyer. This label is VERY difficult to remove.
As for action steps, I would gather all of my information and personally call the appraiser to talk with him/her about any discrepancies. HVCC DOES allow for a real estate agent to contact the appraiser directly, just not the lender. Not all appraisers will be open to talking with real estate agents, however. Some are more receptive than others.
If the appraiser is unwilling to adjust the appraisal, your next step is to file an appeal through the lender who will take your information you have showing that you believe the appraisal is flawed and run it through the appraisal review process. This could take up to a week.
If that doesn't work, you can always order another appraisal from a different appraiser (for a fee) and see if it will come back higher.
This is just a starting point for a low appraisal issue and there are other steps, which could be taken as well if the situation warranted. It is important to note that I am NOT a licensed appraiser, but have been through this process more times than I can count. If this post helps just one person avoid losing a sale based on a low appraisal it will be worth it. Good luck!
