So you are finally over with the appraisal process, but the value is lower than what the seller is asking for. Yes, the lender will not provide you with a loan now, at least not for the amount which was initially approved. But you still want that same house, because you have fallen in love with it. Is there anyway to turn the situation in your favor? Actually, yes. Contest the low appraisal, and if luck is on your side, you may still get the house you want.
Contesting a mortgage appraisal differs depending on your loan type. The supporting documents are prepared in pretty much the same manner, but a slightly different course of action is taken in each case.
Challenging the initial appraisal is the easiest when you have applied for a conventional loan. Take a copy of the original appraisal report from your lender and go through it carefully. Note down any inaccuracies you come across and review the comps which the appraiser has used. They might have missed on some of the sales in the neighborhood, not considered a few upgrades, or not factored in all the amenities in the area.
Once you have gathered a number of strong facts and formulated a compelling case, contact your lender and request them to go over the information. Ask them to either re-assess or order another appraisal. You will have to pay an extra price, but you can still get the same house.
When you apply for a VA loan and get a low appraisal value, you do not actually contest it. Instead, you order a Reconsideration of Value. Unlike other loan types, no other appraisal is performed and you cannot use another appraiser. Instead, the value is reconsidered and facts which may have initially been overlooked are presented.
You will have to provide your lender a written report that highlights the problems with the initial appraisal and the facts that were overlooked. Examples of this include more comparable property and/or errors in area and discrepancies with upgrades. If you wish, you can even submit a CMA or Comparative Market Analysis as a supporting document.
When the lender receives your documentation, they have two choices. If you claim the appraised value is erroneous by 10% or less, the lender passes on the documentation to the original appraisal who reconsiders it. If the value is greater than 10%, the lender will forward the request to the Department of Veteran Affairs, which then issues a revised value. Should your lender opt for this option, you cannot submit another reconsideration of value.
There has been a major change this year. VA Appraisals so longer stay with the property, it stays with the buyer. So if a buyer orders a VA appraisal, then chooses not to buy that house, the next buyer will have to order a new VA appraisal.
However, if the buyer still wants to buy the house, but changes lenders, the appraisal is still able to be used with the new lender.
So the appraisals are specific to the borrower that is ordering it.
When an FHA appraisal is lower than what you wanted, you can appeal the appraisal. Provide your lender with supporting documents that highlight issues with the initial appraisal. Your lender will first talk to the original appraiser, and if they do not amend the report, a request is filed with the FHA and HUD. Both agencies then review the request and if the evidence is substantial enough, another value is reissued.
FHA Appraisals do stay with the property for 4 months. Example: If buyer #1 ordered an appraisal and the deal falls, the appraised value stays with the property for 4 months. If Buyer #2 comes along within that 4 month period and wants to use FHA financing as well, he will have to pay for a new appraisal, because his lender will insist on it, only to find out afterwards that the old appraisal prevails, thus the 2nd buyer wastes his money.
In all the above cases, please note that there is no guarantee the outcome will be in your favor. Also if your loan is not conventional, but is a VA or FHA loan, you cannot start over with another appraiser.
Try your luck and contest your appraisal. You might just get the house you want.