If you've been through the home purchasing and lending process before, you know it is extremely tedious. You have to fill out long applications, get a bunch of paper work in order, and so on. In general, it is a lot of "hurry up, then wait". But the biggest factor most people are waiting on is the home appraisal.
Well, last week, after a period of waiting, we got the appraisal back on the house we were looking to buy, and it ended up coming in a full $70,000 below our offer price, and well below fair market value to similar properties inside the same development. SO IRRITATING!
How could the appraiser think the value was so low? As a buyer, you'd think that would be a good thing (a lower price, right?), but in reality, this seriously jeopardized our deal. If we couldn't get a loan, the seller would have moved on, and sold the house at or near or offer price. We weren't overpaying for the house... something was just wrong.
The Appraiser Botched The Report
After reviewing the home appraisal, it became very clear what happened: the appraiser who did my appraisal botched the report. I can never say for sure if it was "pencil whipped" or he just made a lot of mistakes, but the bottom line is that there were 8 different technical and factual errors that contributed to this extremely low property valuation. To make me even more frustrated, the appraiser only got his appraiser license 2 weeks prior to doing my house (in our state, appraisers have to be licensed and you can see a proof of their license in the report)!
Here are several factual things he missed that I found when looking over the report in detail:
- He said he reviewed the sales contract (according to a box he checked on the report), but didn't include any of the seller concessions or the appliances included in the sale.
- He had several discrepancies in the description of the home, including the foundation and exterior and interior descriptions
- The first comparable sale he used was a foreclosure from last year, which is currently a pending sale as of the appraisal date. Instead of listing it as an active listing for the current price of $550,000, he listed it as a closed sale for the foreclosure price of $338,000. That is a huge difference and is probably what directly impacted the value of my home. You can obviously see it was a flip, and the appraiser totally failed to note that.
- Comparable sale #5 was a similar issue. It is a current foreclosure listed for $390,000, but he listed the condition as good and needing no repair. However, if you look at the MLS listing, it is obviously in need of over $100,000 in repairs to bring it up to current market value.
Basically, all of these issues combined just hammered the home's value. The other 4 comparable sales all support the price I offered, but these two mentioned completely tank the market value.
My Options To Appeal the Appraisal
Now this is where it gets pretty irritating. Luckily, I'm doing a conventional mortgage, so I have the opportunity to appeal the appraiser. However, if I had gone with an FHA mortgage, you don't get that option. Even then, the opportunity to appeal varies from lender to lender.
For my situation, I have to write a letter to my lender detailing exactly what was wrong with the appraisal and how I believe it contributed to an incorrect home value. Then, only if the lender agrees and the appraiser agrees, does the appraisal actually get re-done.
If both parties don't agree, my only other option is to get another lender and start the process all over. Let's just say that sounds a whole lot easier than it actually was.
So here is what I did to get my home appraisal fixed.
Starting With My Lender
My lender had very strict rules it follows for appraisals. Part of their bank's policy is to only allow one appraisal. The only option if the buyer feels that it is wrong is to appeal it with the appraiser. So I sent in this very detailed letter highlighting the 8 different material problems with the appraisal - no disputes on comparable sales used, just pure factual errors.
What I got back was startling. The appraiser wrote a reply back that said just this: "In the opinion of the appraiser, the report remains valid as is and no corrections/adjustments are necessary". They didn't even state why, and the appraisal management company agreed.
As a result, my lender refused to order a new appraisal or do anything else with the price of the home.
A New Lender, A New Appraisal
Luckily, I had a second lender which was competing for my business (I always shop around for a home loan). I immediately called her, and she was able to get an appraisal ordered within 5 days of the appeal letter being denied. This lender did an amazing job getting all the paperwork and appraisal completed in record time.
The appraisal came back at my first offer price, which was a whopping $70,000 higher than the botched appraisal (talk about a discrepancy). Furthermore, this new lender was able to get me a better rate since we waited and rates had gone down in the interim. Finally, she was able to close on time - she closed the loan from start to finish in about 15 days!
We finally got our new home!
It's Not Over - I'm Still Appealing My Home Appraisal
However, I couldn't let the bullshit from the first lender and their appraisal stand. After the new appraisal came back, I called the first lender and respectfully asked for a refund of the appraisal fee I paid, since it was incorrect (that's $450). I then sent them a copy of the new appraisal (which actually used 4 of the 6 comparable sales from the original), and highlighted all the factual errors in their appraisal.
The poor loan officer couldn't do that, but she sent it to her supervisor. The supervisor initially refused to offer me a refund, but suggested that if I could get the State Board of Appraisers to agree that the appraisal was faulty, they would agree to refund my money. For a $450 refund, I thought "what did I have to lose?".
I went to the state's website and filled out a complaint form, and provided all the information. I included:
- The faulty appraisal
- The appeal letter
- The MLS of the comps
- The appraiser's response
- A copy of the new appraisal
A day after closing my property (2 weeks after the whole debacle occurred), I heard back from the State Board, who agreed that the appraisal was, in fact, faulty, and that they are recommending the appraiser take additional continuing education classes as punishment.
I sent this letter to my lender, who agreed to refund my money! Victory!
Final Thoughts On The Process
It's terrible that a single individual can have such a derailing effect on buying a home. It's also annoying that banks place so much faith in a single individual's thoughts on what a home is worth, without reading the report themselves to see if it's even accurate. They are just looking at the number, no matter what.
I also do feel bad for the appraisers. In reading about their industry, they get little pay, have to drive all over, fill out multiple reports per day - it's easy to see how things can be quickly done and mistakes can be made.
The bottom line is that you don't have to let a bad appraisal derail your process.
Robert Farrington is the founder of The College Investor and is widely recognized as one of the nation’s leading voices on student loan debt and saving for college. He holds an MBA from UC San Diego Rady School of Management and has spent over 15 years researching, writing, and advising on student loans, 529 plans, financial aid programs, and saving and investing for young professionals.
Robert has been featured in the The New York Times, The Wall Street Journal, The Washington Post, NBC News, and Forbes, where he has been a regular personal finance contributor for over a decade. His work combines both professional expertise and personal experience – he successfully navigated his own student loan repayment journey and has helped thousands of readers do the same.
He is committed to making the intersection of personal finance and education transparent and accessible. You can learn more about Robert on the About Page or on his personal site RobertFarrington.com.