Appraisal Problems

What happens when the property that you've fallen in love with isn't worth what you agreed to pay for it, at least according to the appraiser. What course of action you should take depends upon which of the following three issues caused the low appraisal.

You've overpaid

Appraisals don't often come in under the contract's purchase price. When they do, more often than not they're low because you overestimated what the home is worth. If this is the case, be grateful that the appraiser has provided you with a big warning that you're about to throw away money.

Because you obviously liked the property, use the appraisal as a tool to either renegotiate a lower purchase price with the seller or get a credit from the seller to do necessary repairs. If the seller won't play, move on to other properties.

The appraiser doesn't know your area

If you and your agent know local property values and have seen comparable homes that fully justify the price you agreed to pay, it's possible that the appraiser simply doesn't know local property values. One clue that this is the case is if the appraiser doesn't normally appraise homes in your area. Another clue is if the comparable properties that the appraiser chose aren't good, representative comparisons.

If you have reason to believe that the appraiser may be off base, express your concern to the mortgage lender that you're using. Also, request a copy of the appraisal, which you are entitled to. The lender should be able to shed some light on the appraiser's background and experience with valuing homes in your area. Sometimes, you can have a reappraisal done without an additional charge.

Sandbagging

The least likely explanation for a low appraisal is that your mortgage lender may have come in with a low appraisal to get out of doing a loan that he or she feels is undesirable. In the business, this trick is called sandbagging.

Lenders who use in-house appraisals are best able to torpedo loans that they don't want to make. Remember that the eager frontline mortgage person at the bank or the mortgage broker who placed your loan with the lender likely works on commission and is not the person who makes mortgage-approval decisions at the lending company.

Should you suspect that your loan is being sandbagged, request a copy of your appraisal. If comparable sales data show that the appraisal is low, confront your lender on this issue and see what he or she has to say about it. If you get the runaround and no satisfaction, ask for a full refund of your loan application and appraisal fees and take your business to another lender. You may also consider filing a complaint with the state organization that regulates mortgage lenders in your area.