How to appeal a low appraisal (and win)!

[Damian Baynes]

Hi everyone,

I've been on this site for a while and don't post as much as I would like but I have appreciated the mountain of information found on here. I intentionally waited until I closed on the loan (which happened earlier today) until I posted this. I'll try to keep this intro brief as the post will be pretty lengthy. In short, I did a refinance and the new loan includes funds for the renovation work I am doing. With this type of loan the bank will base the loan amount on the ARV. I am a pretty conservative person when it comes to my investing. I don't put my rose-colored goggles on when doing projections. The appraiser valued the home ARV at $240K which was well below even my own conservative figure of about $250K. I called my loan person and he said if I felt it was too low i should write a letter to dispute it. I did my search on here of course as well as google searches on appealing an appraisal and the magorily of what I found said that the only way to have a fighting chance is for there to be recent sales that the appraiser did not take into consideration. That was not an option for me so I basically had to breakdown every comp he used. I have copied and pasted below the exact letter I sent to the bank. The only edit I have done is remove the addresses and links.

Dear Sir/Madam,

I am writing this letter to appeal the appraisal I received which I do not believe fairly reflects the true ARV of the property. One of the items that is not reflected in the appraisal is the fact that the property is in a historic district. I believe this historic designation adds value to the property.

I have gone more in-depth on why I believe there are faults in the comps used below:

Comp #1 - (Address insert)

• This house is comparable in size but the location is significantly inferior to the location of the subject property. This comp is much farther away from the main university. The subject property has a heavy concentration of students and student rental activity.
• This property is listed on the Tax assessor’s website as “Apt.Boarding home”, which I think reduces the value of this property as well.

  Comp #2 - (Address insert)

• They are similar in location but the subject property is over 30% larger than this comp. This appraisal is suggesting that these two properties are worth the exact amount, even with such a large difference in size.
• The subject property will include an extra bedroom, laundry room and has a larger basement sq footage.

  Comp #3 - (Address insert)

• This property went into contract and closed two weeks after it was listed on the MLS. I believe this reflects a low listing price/distressed seller who needed to move the property immediately.

  Comp #4 - (Address insert)

• This comp sold two times in a span of 4 months. This appears to be a flip and was just sold for a quick profit. After it was sold the 1st time it was re-listed 2 1/2 months later and then sold a little more than a month after.
• The location of this comp is similar to the subject property but it is much smaller in size.

  Comp #5 - (address insert) #6 - (address insert)

• These two properties are currently active listings and I believe the estimations given to the subject property in relation to these are in line with the ARV.

Below I have listed other nearby comps that I believe also support that the subject property has a higher ARV than suggested in the appraisal.

(Address insert)

• This property was sold on 7/16/14 for $244,000
• Home is 6 bedroom, 2 bath, 1144 interior sq ft, 996 sq ft lot size.
• This home is more than 1000 sq ft smaller than the subject property
• The listing notes there was a “motivated seller”. Suggesting they were looking to move the property very quickly
• Here is a link to the listing: (link insert)

  (Address insert)

• This property was sold on 4/29/14 for $235,000
• Home is 6 bedroom, 3 bath, 1530 interior sq ft, 1107 sq ft lot size.
• This home is more than 1000 sq ft smaller than the subject property
• They are in a similar location
• Here is a link to the listing: (link insert)

• (Address insert) (active listing)

• This property is currently listed at $325,000
• Home is 6 bedroom, 2 bath, 1800 interior sq ft, 980 sq ft lot size.
• This home is almost 1000 sq ft smaller than the subject property
• They are in a similar location
• Here is a link to the listing: (link insert)

• (Address insert) (active listing)

• This property is currently listed at $395,000
• Home is 6 bedroom, 1 bath, (listing description states 5 bedroom, 2 baths), 1895 interior sq ft, 1102 sq ft lot size.
• This home is almost 1000 sq ft smaller than the subject property
• This comp is slightly closer to the main university in the area
• Here is a link to the listing: (link insert)

Thank you for taking the time to review this and I hope you find that the information I have provided does in fact support a higher valuation for the home.

Warm Regards,

Damian Baynes

In the end it took me just under two hours to compile all of the information I used and to type the letter to the bank. They did ask me for proof that the home is in a historic district which I provided them. A few weeks later they scheduled a second appraisal and the second appraisal came back at $264K! This $24K difference was literally the difference in me getting this loan and not getting it. I know it's a long read but hopefully it will help others who ever get in a similar position.

[Damian Baynes]

One last note for reference. The subject property is over 2700 sq ft and will be a 6 bed 2 1/2 bath.

[Brett K.]

Good job Damian.  I hear about bad appraisals from time to time (they are never my reports!) and I tell people people they can challenge them.  Few do, even fewer win.  What you put together is exactly what an underwriter wants to see.  It's logical, reasonable, and it covers their *** (documentation for the loan file).  Congratulations.  

[Damian Baynes]

Thanks @Brett K. I knew I had to challenge it. I really would have been screwed if I didn't. I also made sure not to half-a$$. I figured it was better to overkill it and give them too much info then just a generic dispute saying "My house is better because I said so". I hope to never have to go through that again though. In all it pushed everything back over a month.

[Raechelle Carroll]

What a win! Appraisals can be unpredictable at times but you fought and WON and that gives the rest of us proof that it can be done. Keep up the good work!!

[Damian Baynes]

Thanks @Raechelle Carroll  Yeah they can be very unpredictable. It was the first time I ever dealt with a low one.

[Roman Pak]

Awesome job. Way to go. 

[Damian Baynes]

Thanks @Roman Pak !

[Kelly N.]

Thank you for this!

We are purchasing a quad plex near a university and the appraisal just came in low (85% of our agreed price, 79% of asking price.  The loan officer said any low appraisals automatically get sent in for review so we will see what happens, but I wanted to get prepared to fight.

I am hoping they used the two homes we purchased in the area 2 years ago as comps since I can already detail how this house is superior.  I was shocked at the low value they gave this house- our first two came in at almost exactly the agreed price- one was $1000 more.  

Kelly

[Damian Baynes]

@Kelly N. seeing that you're purchasing maybe the low appraisal will work out in your favor and force the seller to lower their price a bit more as opposed to you having to come up with more money. Good luck with the review process. Hopefully it works out.

[Vanessa Peterson]

I just want to say a big thank you To Damian! I used your letter as a template for our own situation. We are refinancing our primary home to get a lower interest rate and get rid of pmi. We bought the home for 415k, it appraised at that time for 438k. The market has appreciated in our area 10-20% so we expected a higher appraisal. However, we were definitely disappointed when the refi appraisal just 9 months after purchasing our home in an appreciating market came back at 426k. With your letter, our appraiser revised the appraisal value to 450k. Woo hoo! P.S. I think I incorrectly used the term ARV but oh well, still got the point across....

Here's a copy of my letter...It took about 1 week for our appraisal to be revised. 

April 29, 2016

Dear __________

We are writing this letter to appeal the appraisal we received which we do not believe fairly reflects the true ARV of the property. This home appraised for $438,000 just 9 months ago. (Previous appraisal attached) It appears incorrect that our home would depreciate in value $12,000 in an area that has seen significant appreciation (18%) over the last year.

http://projects.oregonlive.com/maps/housing/hot-neighborhoods

http://www.oregonlive.com/front-porch/index.ssf/2016/04/looking_for_a_home_in_the_red-.html

http://www.pdxblog.com/neighborhoods/se-pdx/creston-kenilworth/

One of the items that is not reflected in the appraisal is the fact that our house is on the west side of 52nd avenue. In a market where homebuyers are trying to get as close in to downtown as possible, these differences matter. Four out of the six comparable homes in our appraisal are east of 52nd avenue.

I have gone more in-depth on why I believe there are faults in the comps used below:

Comp #1 - 

This house is comparable in home size, lot size, and location, but is significantly older (built in 1959), has only 1 car garage, and does not have 2 full bathrooms. Additionally, the bathrooms, kitchen, and closet doors are dated and do not compare to the remodeling that has been done in our home.

Comp #2 - 

This home is just slightly larger and is comparable in home style and layout, and was built more recently, but is in an inferior location, has a smaller lot size, and only has one car garage.

The location alone makes this house’s value much less than ours.

Comp #3 - (

We believe this home is a fair comparable to our home.

Comp #4 - (

This home is comparable in home size and lot size, but has an inferior location, does not have a garage or a fireplace, and is a much older home (1951).

This comp sold two times in a span of 6 months. This appears to be a flip and was just sold for a quick profit. After it was sold the 1st time it was re-listed 5 months later and then sold a little more than a month after.

Comp #5 - 

• This home is a pending sale that may sell above list price, which is currently the trend in the Portland area.
• This home is comparable in home size and lot size but inferior in location.
• This home also does not have a garage or a fireplace and is a much older home (built in 1950).

Comp#6 - (

We believe this home is a fair comparable to our home. It is in a slightly better location but has much older bathrooms. All other factors seem comparable.

Below I have listed other nearby comps that I believe also support that the subject property has a higher ARV than suggested in the appraisal.

Additional Comp #1

This property was sold on 4/7/16 for $445,000

Home is 3 bedroom, 2 bath, 1420 interior sq ft, 5200 sq ft lot size.

This home was built in 1979. Our home was built comparably in 1984.

This home is slightly larger in square footage than the subject property however the location is inferior.

It also has a remodeled kitchen like ours but the bathrooms are dated.

Here is a link to the listing: 

Additional Comp # 2

This property was sold on 1/7/16 for $435,000

Home is 3 bedroom, 1 bath, 1490 interior sq ft, 4000 sq ft lot size.

This home is slightly larger in square footage (only if you count the basement as square footage), but is in an inferior location, only has one bathroom, only has a single car garage that is detached, and is much older than our house.

This home was built in 1925. Our house was built in 1984.

Here is a link to the listing:

With all due respect, we kindly ask for you to review this information and we hope you find that the information we have provided does in fact support a higher valuation for the home. Thank you.

Warm Regards,

[Vanessa Peterson]

As a newbie to bigger pockets and just in the grassroots of getting into real estate investing, a win like this with the help of bp really gets me excited! Thanks again!

[David Faulkner]

Nicely done!

A few things to note ... a bank does not generally use the term ARV, that is more of a concept for flippers. A bank doesn't care about future or after repair value, they care about current market value as determined by the price of recently sold comparable properties. Why? Because this market value coupled with how much you put down, your income, and credit quality determines the risk of the loan ... the first two factors for them to foreclose on you they want to know how much they can resale the property for to recover their principal + legal fees and the second two for the likelihood of this happening ... sad but true. The appraisal as such is not really there to protect you, it is there to protect the lender. Same to a lesser extent goes for the inspection. For once in your entire life, and probably the only time, your interests and the bank's interest are somewhat aligned when you are in escrow on a property you are financing :) So another way to look at it is that while it is true that it could screw you over if the appraisal doesn't come in and is unrealistically low, it is also true that it could save your behind if it is on the money and below what you offered. Something to consider ...

[Stephanie Medellin]

@Damian Baynes  I like the format of your letter!  It is succinct and to the point, outlining the most important details.

[Peter Tverdov]

Not to be Debbie downer here but's almost a worthless effort. I once caught an appraiser who completely screwed up, wrote them a letter showed them a massive comp they didn't count and their response? Too bad, we still won't count it. I think it's worth trying but I wouldn't hold my breathe. They suck a lot, especially when it comes to dealing in areas where the income approach is how homes trade, not comp sales.

[John Geldert]

@Damian Baynes I have to thank you for this post, I recently ran into this situation on a duplex that I purchased back in March. To make a long story short, I had purchased the foreclosed property for $100k put about $29k of rehab into it and expected the ARV to be between $180-$190k. When the appraisal came in @ $119k I was shocked, frustrated and confused on how my evaluation of the current market and this newly rehabbed duplex was so off line. I searched the internet and of course BP on how to appeal this appraisal, when I found this post I knew I had a fighting chance. I followed the template, disputed the comps and added an itemized list of renovations performed at the subject property. I also added three new comps that I felt were more inline with the current state of the duplex. The bank hired another appraisal at their cost and it came in at $185K! So I wanted to take the time to thank @Damian Baynes for sharing the  experience here on BP so that we can all learn from it. Cheers!