FHA Changes, Jumbo Loans and Low Appraisals: A Lending Update

by Chicago Agent


Ken Perlmutter
PERL Mortgage, Inc.


Q: Having an appraisal come in low is a common problem. How can I mitigate a low appraisal?

A. In an ideal world, it would be great if we could have two appraisal markets: a foreclosure/short sale market and a “regular” arm’s-length transaction market. But since that is not an option, we have to try and mitigate for a potential low appraisal from the beginning of the process.

One of the biggest issues with appraisals, especially in Chicago, is that appraisers are appraising areas in which they are not familiar. Since the Chicagoland area is quite big and the areas are so diverse, without the correct knowledge, this can be a problem – home values just a couple of blocks to the east or west could make a huge difference.

When an appraiser calls to schedule the appraisal appointment, the homeowner or real estate agent should “interview” the appraiser. You want to make sure that the appraiser knows the listing’s neighborhood boundaries, that they have appraised that particular area before and are familiar with any unique attributes in the neighborhood. If the property being appraised is a high-end property or a multi-unit, agents should ask the appraiser if they have experience appraising these types of properties.

If you feel his/her skill level is not accurate for the area, call your loan officer and ask that they reassign the appraisal due to the appraiser’s lack of knowledge of the listing’s area. But once you have interviewed the appraiser and feel comfortable with the knowledge they have and feel that he/she is the best for the job, go ahead and schedule the appointment for an appraisal. When an appraiser comes for his/her appointment, make the job easier – have a list ready of all the upgrades and improvements your client has done to the home and let them know of any FSBO homes that may have recently sold in your neighborhood. It is also a good idea to provide a copy of the most recent survey done on the home, which will likely be included in paperwork from your client’s initial purchase of the home. If it is a purchase, the Realtor should also give the appraiser a comparable market analysis that includes each home’s features, square footage and date closed. This will help the appraiser in appraising your property at the highest possible value.

If you believe the home’s appraisal is incorrect or that the comparable homes the appraiser used weren’t as suitable as others, provide a rebuttal to the lender to send to the appraiser, which lists the properties that were not utilized and explains why you feel these are more comparable than the properties used in the appraisal. Comparables should be recent, preferably within the last six months. According to the Dodd-Frank act, no employee of the lender or appraisal management company can influence an appraisal in any manner, including ordering, obtaining, using or paying for a second or subsequent appraisal in connection with a mortgage financing transaction, “unless there is a reasonable basis to believe that the initial appraisal was flawed or tainted.” In compliance with the act, an appraisal is only considered to be “flawed or tainted” if there are material errors or inconsistencies in the appraisal.

However, if the appraiser won’t reconsider, or the comparables used were the best available, talk to your client and the seller’s agent about renegotiating the contract or for the buyers and sellers to split the difference, or talk to your loan officer about upfront PMI on the loan that could be split by the borrower and seller so that the buyer can keep the same loan amount.

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  • Ryan Rahim says:

    I’ve been trying to get my FHA buyer into a lot of buildings, but it seems that most high rises do not want to renew for FHA. I wish they would renew FHA in all the buildings that once had them.

  • Lester S "Lester the Lister" says:

    It is not always that they don’t “want” to…..they may no longer qualify due to factors like a high % of rental units within the bldg, a high # of distressed properties and or delinquent assessment payments or other financial issues.

  • PB Jones says:

    Interview the appraiser? Are you kidding me. Good luck with that. The lender hired the appraiser, not the broker. It’s not the brokers’ business unless they are willing to face the same competency grilling to determine their skills in Comparative Market Analysis and to determine if their commission and seller expectations were taken out of the listing price. Lenders want impartial, independent and objective opinions of value, which is why they hire the appraiser. Low appraisals are frequently more a case of brokers’ inflated list prices.

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