Summer of 2019 someone I know told me that an appraisal came in well below the contract price on the sale of their home. They said that they were planning on challenging the appraisal and asked me what I thought. I empathized with them and said that most buyers would not be in a position to come up with the additional down payment to cover the shortfall between the appraised value and contract price. Even if they did have the money, most buyers take the position of not willing to pay more for a home than its appraised value. If there are no other interested buyers in the property, the seller typically ends up having to amend the contract price to the appraised value in order for the sale to go through. It is no doubt a disappointing and frustrating situation to be in for any seller.
Having said this, the seller mentioned that, in their opinion, the appraiser didn’t give enough value for their mother-in-law suite, nor for their outdoor living space which included a pool, back porch, and extensive landscaping. This appeared to be a valid argument so I advised them if it was approached in the right manner, the appraiser may reconsider changing their appraised value. Going about it the right way entailed knowing who can communicate with the appraiser and what can be asked of them, in order to maintain appraiser independence.
I referred the seller to the Dodd-Frank legislation, 15 U.S. Code GS 1639e – Appraisal Independence Requirements: which states “The requirements of subsection (b) shall not be construed as prohibiting a mortgage lender, mortgage broker, mortgage banker, real estate broker, appraisal management company, an employee of an appraisal management company, consumer, or any other person with an interest in a real estate transaction from asking an appraiser to undertake 1 or more of the following: (1) Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal. (2) Provide further detail, substantiation, or explanation for the appraiser’s value conclusion. (3) Correct errors in the appraisal report.”
In other words, as long as there was a valid concern and pressure was not being put on the appraiser to “hit the number”, then it would be appropriate to question the valuation conclusion. In this case, the appraiser determined that it was appropriate to give more value for the aforementioned amenities and increased the appraised value of the home. While the appraisal still came in a little short, the buyer decided to come up with the out of pocket difference, and the home was sold for the original agreed upon contract price. This seller was fortunate that the home inventory was in short supply and that the buyer really wanted a pool and loved their home.
If you are in need of an appraisal for your home, Bert Ward with Black Diamond Real Estate is an NC expert for home appraisals. You can contact him at 336-213-0989.