How Agents Can Strategize to Overcome a Low Appraisal

By Bernie Miller, 
Federal Savings Bank
Chicago

I think there are some things upfront that an agent can do to help keep from getting a low appraisal in the first place, potentially. Appraisers can only use data from properties that have sold. Agents start by making their buyers and sellers aware of the fact that the appraisal could come in low. This way, the clients on both sides, specifically the sellers, who are usually the more upset or shocked ones when they hear the appraisal come in, will be prepared.

Another thing an agent can do upfront to help overcome a low appraisal is completely legal: speak directly to the appraiser. Bankers can’t speak directly to the appraisers, but agents can. When the appraiser comes to their home, an agent can have comparable properties out there. For example, in a past Chicago Agent magazine issue that dealt with appraisals, one appraiser made a comment along the lines of, “these agents give me terrible comps.” Well, there is absolutely solid comparable data agents could bring to the deal.

But the key to those comps is, they need to be of similar properties. In other words, the listed property is a four-bedroom, two-bath, and if an agent gives a comparable of a five-bedroom, three-bath, the appraiser can’t use that. But even more essential are the recent sales on those comparables – agents should really focus on things that have sold within the last six months. You might have the perfect comp – and I see this a lot – but if it’s of a comp that sold last May, an appraiser can’t use that. They’ve got to find something more recent.

My last piece of advice for any agent, whether they are the buyer’s agent or not (and that buyer’s using a lender), is to have some sort of dialogue or knowledge of the lender with whom the client is working with on preapproval. I get calls all the time from listing agents asking, “How does your bank work? Are you hands-on? Are you going to be really involved with the client? How many of these kinds of loans did you close this year?”

I think it’s okay for agents to call these lenders and ask those kinds of questions; I think it’s viable because there are just so many lenders that maybe aren’t as in-tune to the market, and of course, when there’s an appraisal issue, that lender is not going to be as hands-on or able to help.

But let’s say an agent did everything I just suggested and the appraisal still came in short. What are your options? The first step that they need is to check the accuracy of the appraisal. Agents have intimate knowledge of the properties, and sometimes an appraisal, or an appraiser (especially right now), may be from an appraisal management company that isn’t as familiar with the neighborhood or property. I think a lot of agents have complaints about that, and I would say it’s the same for lenders. We would love to have local appraisals, but sometimes the rules don’t allow that as well as they should. And so, if an appraisal comes in low, we need to check the accuracy of the property.

Although an appraiser will perform an inspection of the property, some go to public records and use that data, not data from the inspection – in those cases, they may see it’s a 2,200-square-foot property, but as it turns out, there’s an addition that the records don’t show. Therefore, there’s a chance that this property should have been compared to different properties altogether. I have had appraisals in the last year that were inaccurate like this, so not panicking and checking the appraisal for accuracy is an important first step.

Step two deals with the lender. Most lenders have an appeal process for the appraisal, and so an agent would be, again, allowed to provide comparable explanations and appeal the appraisal. Sometimes this works, sometimes it doesn’t. If it does work, though, a second appraisal or second opinion is allowed, which, depending on the lender’s bank policy, may charge the buyer. If the second appraisal comes in, you could potentially use the second appraisal if it comes into value.

If a second appraisal is not allowed, open dialogue should start between the lender and the buyer’s agent. I’ve seen several of these situations get worked out this way. In the end, if we have to, we negotiate a little bit and see if both sides can meet in the middle, or maybe the buyer can get a lender credit. Open communication is key because both sides want to get the deal done. Nine times out of 10 it’s still a good deal for the buyer, because they can have a house they love; it’s a good deal for the seller because they have a buyer who is lendable right now. Until the strict appraisal rules come back a little bit, there are going to be these types of issues, but this is what can be done.