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6 Steps for Responding to a Low Refinance Appraisal

Managing Your Mortgage, Mortgages
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You’ve just had a property appraisal done so you can refinance your home, but the value is much lower than you expected. It’s discouraging, but don’t despair; you have options to keep the refinance process on track.

By knowing what goes into an appraiser’s opinion — and having a plan of action ready in case the final figure disappoints — you’ll be primed to correct any errors and perhaps get your valuation raised. Here are six steps to help.

1. Ask for a copy of the appraisal report

Property appraisers use a variety of criteria to determine your home’s value, including size, age, condition, recent sales, current comparable listings and amenities. You’ll see boxes checked for these items on the Uniform Residential Appraisal Report, which most certified appraisers use.

Double-check the measurements for your home’s square footage, as well as the number of bathrooms, conforming bedrooms and living spaces. If you spot errors, let your lender and appraiser know immediately.

2. Analyze which comparable listings were used

Appraisers rely on recently sold homes and current homes on the market to help determine your home’s fair market value, which is the price a potential buyer would reasonably pay.

Sometimes, though, there aren’t enough of these similar listings, known in the trade as “comps,” in your neighborhood. An appraiser might have to look further back, past 90 days, to get the data, says Bill Kilzer, a certified property appraiser in Denver.

Your home very well might be worth more than what comps sold for six months ago, but that might not be reflected in today’s appraisal if there are no recent sales for comparison. Kilzer says that’s why he also looks at current listings to gain a more complete value picture.

3. Get an advocate

If you think an appraiser used outdated or inappropriate comps, contact a local real estate agent who works in your neighborhood and knows it well, says Tom Salomone, president of the National Association of Realtors and broker/owner of Real Estate II in Margate, Florida.

“A Realtor will be able to provide you with a fair market analysis of your home,” Salomone says, adding that most real estate agents provide the service for free. “If you’re seeing that an appraiser used comps from six months ago and the Realtor finds comps sold within 90 days, then you have a right to ask why more recent sales weren’t used.”

4. Consider the feedback objectively

If an appraiser gave you a lower-than-expected value, take the time to understand why. Have the comparable properties used in the report been updated but yours hasn’t?

Take a critical look at your home: If paint is obviously chipped or some spaces need updating, you can’t really blame the appraiser for docking the value. If other listings that have recently sold or are currently on the market all have newer roofs and yours is 20 years old, it’s unlikely your value will budge if you don’t replace it.

On the other hand, the appraiser will make adjustments in your favor if your home has amenities or upgrades the comps don’t — a pool, for example, Salomone says.

It’s understandable to feel a little upset if someone else doesn’t think your home is worth as much as you do. But an appraiser’s opinion is meant to be neutral, and you have to try to be objective too. (Easier said than done, right?)

5. Understand the subjective and objective factors involved

It’s worth noting that some subjective items factor into your home’s value. For instance, if an appraiser rolls up to your home and it’s cluttered, it’s dirty and the exterior looks like it’s falling apart, it makes a bad first impression. And while you might not mind an older home that backs to a busy street, appraisers typically see that as a drawback.

And there are objective factors, too. Let’s say you added two bedrooms in the basement. If those basement additions were made without permits and don’t conform to your local government’s standards, it can hurt your home’s value, Kilzer says. That’s bad news if you spent considerable time and money on improvements you thought would pay off down the road.

You have limited ways to address factors like unpermitted work, but a little bit of effort can go a long way toward addressing subjective factors. There are simple ways to whip your property into shape if you end up repeating the appraisal.

6. Ask for another appraisal

Most lenders are reluctant to order another appraisal without good cause. Appraisals are costly — an average of $300, Kilzer says — and they take time.

However, if you have documentation to show there are better comparable properties to measure your home against, or if your lender used an appraisal company that’s not local, call your mortgage broker to discuss the possibility of getting a second opinion.

You’re also not tied to one lender and you can try the process again with a different one, experts say. Keep in mind, however, that appraisals ordered for government-backed loans (such as FHA-insured mortgages) stick with your property for at least six months. If you’re pursuing that type of refinance loan, you’ll have to wait six months before trying again, Kilzer says.

Bottom line

If you’re thinking about refinancing your home, do as much prep work as you can ahead of the appraisal to enhance your home’s value. And if the numbers don’t match what you had in mind, keep the lines of communication open with your mortgage broker to figure out workable solutions that will move everyone toward a successful closing.

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Deborah Kearns is a staff writer at NerdWallet, a personal finance website. Email: dkearns@nerdwallet.com. Twitter: @debbie_kearns


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