Stumped by a Low AppraisalNovember 10, 2009 at 4:30 AM | Posted in mortgage | 5 Comments
A few days ago my husband and I were shocked by an unbelievably low appraisal on a small piece of property in North Carolina. After inquiring about the property and submitting a bid we contacted a lender to apply for a loan. The lender immediately hired an appraisal company to value the property. While I thought the seller’s price might be a bit higher than the appraisal I was shocked to find out that the vacant lot appraised for $100,000 less than our offer.
It is my understanding that appraisers search for real estate sales that follow specific guidelines. I thought appraisals were typically based on sales within a one mile radius that are less than 12 months old. This was not the case with our appraisal. The appraiser compared our lot with sales on properties that are ten miles away and over a year old.
We’re looking to purchase a waterfront property in an area with very little vacant land. Over the years the majority of lots in communities in and around our area have been built upon. Rather than looking at all land sales within a one mile radius of our home, the appraiser looked only for sales of waterfront properties. He had to go 10 miles away to find sales on vacant waterfront lots and found only three within the last year and half. He used those three properties as the comparables in his appraisal.
Of course, as anyone knows, you cannot compare lots that are over ten miles away from one another. Heck, in our neighborhood in Maryland the price of houses in our immediate community ranges between $400,000 to $850,000. If you walk down the street and into the next community, (less than half a mile away), you won’t find a home worth more than $300,000. If a few blocks can cause that much variation in price you know that it is impossible to compare properties that are over ten miles away.
So what can you do about a low appraisal? Well, in our case very little. Our lender will not accept independent appraisals, so our only option was to refute the valuation the original appraiser provided.
We provided detailed documentation to the appraiser, including a number of properties in the area that sold for $100,000 to $150,000 more than the valuation he provided. We explained that sales that are more than ten miles away and over a year old are not a reflection of the current real estate market in our community.
Of course, just as I expected the appraiser refuted each of our points and explained that the lot had to be compared to waterfront property and that none of the recent sales in our community were waterfront. Hmmm, that’s funny, because usually waterfront views increase the value of a property, yet this waterfront property is valued at nearly half of some of those lots.
Honestly, I didn’t expect the appraiser to change his valuation. His number is so off the mark that he would look like a complete goon if he went back and revised his original estimation. It turns out that the appraiser is a trainee that is from a community far away from the lot in question. Odds are that he is both unfamiliar with the appraisal process and our community.
So where does that leave us. Well, the lender certainly won’t provide us a with a loan large enough to fulfill our needs. They will provide us with only a 66% loan on the property valuation, which is quite a bit less than we require.
At this point it is fair to say that the lender will not further decrease his price. He dropped $35,000 off his asking price already, so if we wish to proceed we need to explore other financing options.
I wonder how many times an appraiser revises his valuation. Based on this experience I would imagine that it happens very infrequently.