The Appraiser serves as the “eyes” of the lender and is responsible for presenting the collateral (i.e. the home) in an accurate manner. During the home appraisal process, it’s imperative that you take the appropriate actions to avoid appraisal pitfalls during the mortgage loan process.

Be sure to check out our seller section and how to prepare your home for an appraiser as a seller if you’re selling a home. Likewise, check out getting your home ready for refinance appraisal if you’re refinancing. Maximize your home’s potential.

Appraisers are responsible for identifying potential issues and notating those risk on the appraisal. Appraisal reports can produce two major pitfalls: issues with home’s condition and a low valuation. The good news is that you can be proactive and avoid appraisal pitfalls before the appraisal report is issued.

Provide Intel

The primary risk factor you face as a buyer is the home’s valuation coming in below the sales price. A low value can severely impact your financing (or even negate a loan approval). The “good news” is that you, the seller, and the Realtors can have a voice.

Provide comps: MLS and off-market

Our recommendation is to have your Realtor, the Selling Agent, find comps that support the sales price. (Hopefully, this was done before you executed the contract to ensure you’re offer wasn’t accidentally above the market). This is one of the primary areas where a great Realtor will shine and help you avoid appraisal pitfalls.

Have your Realtor ask the Listing Agent if they, or the sellers, can provide any off-market comps that would support the value.  Appraisers don’t have access to “hip pocket” sales (i.e. sales that were not listed in MLS). Ask the Listing Agent to send those comps to you.

Finally, ask the seller and Listing Agent if they can provide any “insider” information about recent sales that would HURT the valuation. Have them send that information to you. For example, they may know that the home across the street was sold at a steep discount because the homeowner lost his job and needed to move. That insider intel should be considered. The Appraiser can neglect that comp, find other homes to use, and notate why that house isn’t indicative of the market.

Put a bow on the information

Once you have all that information – the MLS comps, the off-market comps, and the “insider” info – you can send that information us AND to the Listing Agent. It would be prudent to have a cover letter explaining what is included in the package along with any pertinent comments and opinions from your Realtor.

We will then include that information in our appraisal order. Likewise, we recommend you ask the seller to print two copies of that information.  Have the seller leave one copy on the kitchen counter and the other taped to the front door the day of the appraisal. This way the Appraiser can’t use the excuse that they didn’t see the package. The Appraiser may not use any of the information – that’s their decision – but at least you provided all the intel possible so they can make the best possible appraisal.

Prep, plan, and fight (if needed)

Unfortunately, appraisals occasionally come in lower than the sales price and can create issues with mortgage financing. The “glass half full” approach is to realize that the appraisal may have prevented you from overpaying on a home without knowing it. Regardless, you should check out appraised value vs. sales price: plan for the worst so you know your options. Afterwards, you’re welcome to fight the low appraisal if you believe there is merit to do so.


Property Condition

An Appraiser’s job is to provide an accurate, unbiased assessment of a property. The Appraiser is to make observations – not opinions – about the condition of the house. Appraisers will comment on any items they deem to be inferior, outdated, or nonfunctional.

For example: an Appraiser is to make note of cracks in walls and ceilings and comment about any doors that may be difficult to shut. They will then recommend that the foundation is inspected. It’s not the Appraiser’s job to assess whether there’s an actual foundation issue; only that there are warning signs of foundation movement. The lender will then take whatever action they see fit. (In this example they would want a structural engineer’s report to verify that the foundation is acceptable).

Most lenders will require additional inspections when an Appraiser brings something to light.

Be Proactive: Get Inspections

The best approach to avoid appraisal pitfalls relating to the home’s condition is to be proactive during the option period. First and foremost we highly recommend you get a home inspection. Then we recommend getting specialist involved based off what the report discovered.

Call a roofer, HVAC professional, foundation company, etc. and have them inspect the house. Uncover the issues before the Appraiser visits the property. Then you can address these with the seller during the option period. Perhaps you can negotiate seller concessions to help pay for closing costs and/or reduce the price of the home. The lowered sales price may save the day if the home value falls short of the original purchase price.


Realistic Expectations

The last thing to do to avoid appraisal pitfalls is to have a realistic expectation. Realize that Appraisers can only use comps that have recently been sold in the neighborhood. They may want to give the home a value equal to the sales price but may not be able to if the data isn’t present.

That’s nice… but you can’t use it

For example: let’s assume you have a contract to purchase a home with a huge, wooded backyard that backs up to a creek. That sounds amazing! Now let’s assume that all the houses next to you haven’t sold in years because it’s a great neighborhood with low turnover. The Appraiser may have a very difficult time adding any significant value for the oversized lot, extra trees, and creek view if there aren’t any comps. We all know that is worth paying extra for that “unicorn” house. The issue is that the value can’t be supported on paper.

Another example: imagine you find a house with a fully decked out backyard. I’m talking outdoor kitchen, fireplace, top-of-the-line grill, brand new pool, the works. Despite the fact that someone spent $100k or more on that backyard the Appraiser may be handcuffed if there aren’t any houses in the area that recently sold with a comparable setup. Again, it’s totally “worth” more and sounds amazing, but the appraisal valuation may not support that.

Plan for the worst

Be aware of how appraised value is determined and plan accordingly. Be aware that value may come in lower than the purchase price if you’re buying a house that’s at the top-end of the neighborhood.

The sellers may know they have the diamond in the rough and may not be willing to come down in price. You need to know your options, especially if you’re parting with a minimum down payment (0% to 5%). Check out appraised value vs. sales price – how to prepare for the worst and how to fight a low appraisal if you think the value will come in low.

What’s Next

Mark and the team can walk you through the entire home loan process and mortgage loan process. Call us with any questions and let us know how we can help.


Mark Pfeiffer

Branch Manager
Loan Officer, NMLS # 729612

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