Challenging a mortgage appraisal

Challenging the results of the appraisal for mortgage financing

The first thing to remember as a consumer or real estate agent, is that the client is the lender, not the consumer. Even though the consumer may pay for the appraisal, they are no more the client than is the credit reporting agency or title company hired directly by the lender.

The lender obtains the appraisal to ensure that the collateral is adequate for the loan (remember the three C’s of credit, capacity, and collateral). The appraisal is for their benefit, but at the same time, the appraiser needs to complete a fair and supportable valuation. There should never be any bias in favor of any party, or value.

Even though the lender is the client, the borrower is by regulation, required to be given a copy of the appraisal report. When a sale is involved, the valuation may be lower than contracted price. This begs the question, what, if anything, can the consumer do about it?

Lenders offer a formal “Reconsideration of Value” (ROV) process. Most have this process as “one and done” meaning the consumer cannot keep coming back with more data, therefore putting forward the best argument at the outset is imperative.

The steps involved in filing an ROV are to first read the entire appraisal report that was completed and examine the comparable sales as to whether they are ones that the consumer would have considered as reasonable alternatives or not. If there are ones the consumer considers more reasonable, then there are three important points that must be addressed:
1) Are the alternatives more recent to the effective date (not after)?
2) Are they more proximate to the subject?
3) Are they more similar in size, age, style, quality, and appeal?

If those alternate sales do not meet some of these criteria, then they are unlikely to be considered. The appraisal does not choose sales based on price, but on similarity to the subject property (with being proximate and recent important as well). Caveat is that sometimes an older sale that is highly similar will be the best indicator, if the adjustments for changing market conditions are analyzed and made.
Reading the appraisal report will disclose why the sales that were used were chosen, and how they compare.

Another possible reason for an ROV would be incorrect information in the appraisal report. This is particularly likely in the age of Covid-19 when some appraisers are not opening all doors and poking around the property as much as they used to. The half bathroom under the stairwell could be missed in that manner. Perhaps something was missed, and the appraiser could address it, but again reading the report will indicate if it were addressed, simply not included in the sales comparison grid that is the focus for most disputes.

If there is adequate information to move forward with the dispute, do not contact the appraiser. Remember the appraiser’s client is the lender, not the consumer or the real estate agent. Contact the loan officer for assistance in submitting an ROV, but remember these processes are mostly one-and-done, therefore be rational and compelling in that first submission.
• Explain how each sale that should be considered is in some way better than the ones in the report
• Limit the number of sales to three if possible
• Do not be confrontational
• Address any inaccuracies noted and support for that position

Most appraisers will respond to the ROV as a normal part of their business. Some will refuse to consider what was offered, but that is rare. Chances are the sales offered were already considered but not included, and the appraiser will respond as to why not, but sometimes a good valid sale is missed, simply because the geotagging or MLS area number were incorrectly inputted on the listing, and it did not show on the appraisers search. Sometimes there are sales that were showing as under contract as of the effective date of the appraisal that had closed. Sometimes errors occur since humans are human. Sometimes a value dispute will result in the appraised value increasing, sometimes it will result in no change, sometimes it will result in the value decreasing.

Do not assume the appraiser will refuse to look at the request. Put your best foot forward by providing solid data for consideration in a professional manner. If the value remains the same, then it is time to renegotiate or move on. Remember the appraisal is for the benefit of the lender to ensure there is adequate collateral for the property they are lending on.