Appraisal: Oh no! It’s low!

June 1, 2006

You’ve done everything right. You found your clients the perfect home. True, the property is at the high end of their price range. True, they offered almost full list price after having already lost out on two other homes. Now all your clients need is the mortgage, and the deal is done. But when the appraisal comes in, the valuation is low. What can you do legally and ethically to resolve the situation and not just watch your clients’ perfect home go to someone else?

You never want to demand or coerce an appraiser to revise the appraisal. There must be a reason for the appraiser to reconsider an opinion of value other than “This is what we need to get the deal through.”

Like real estate brokers and salespeople, appraisers strive to provide competent professional services and preserve the faith entrusted to them by their clients and the general public. Real property appraisers, like real estate practitioners, are licensed and regulated by state government agencies; but they also must operate under federal guidelines, including the Uniform Standards of Professional Appraisal Practice, which includes all-encompassing rules that define and govern ethics and competency.

In the back of every appraiser’s mind is the knowledge that federal regulators are on the lookout for mortgage fraud, predatory lending, and illegal property flipping. The Federal Bureau of Investigation’s Suspicious Activity Reports concerning mortgage- and appraisal-related fraud increased by 28 percent in 2005, and estimated losses due to such fraud rose to more than $1 billion, according to U.S. Department of Justice statistics. These illicit schemes contaminate sales data and make it more difficult for appraisers and real estate practitioners to accurately estimate value.

It’s not surprising, considering their mind–set, that appraisers react negatively when it’s suggested an appraisal should be revised. However, there are ways to approach a low-appraisal situation that are both legal and likely to produce results.

Focus on the facts.

Facts, not emotion, will pique an appraiser’s interest. If you have data not available to the appraiser through standard sources, such as the MLS or county tax rolls, you may be able to grab the appraiser’s attention and possibly affect a revision in the appraiser’s opinions or conclusions. For example, appraisers usually work larger market areas than the typical real estate sales associate. As a result, there may be nuances in your market—such as highly rated schools—not readily apparent to the appraiser. Perhaps you’re aware of upcoming public improvements that will have an effect on the sales price. Or are there recent sales of similar properties not yet part of the public record supporting a higher price?

Have the details ready.

If there are issues you want to bring to an appraiser’s attention, they must be supported by facts, not anecdotes or rumors. An unsupported statement such as “prices have appreciated by 10 percent in this area over the past 60 days” isn’t likely to get an appraiser’s attention. Instead, if prices have escalated because of limited inventory, high demand, and multiple offers, be prepared to show evidence of that activity. Some practitioners believe providing such detail is doing the appraiser’s job. Others more rightly believe that it’s doing everything possible to facilitate the transaction.

Present real comparables to support your arguments.

Recent sales similar to the property under contract, that appeal to the same market segment, and that are in the same or a similar location are comparables. Other properties are merely sales. Among the 25 certification statements that appraisers must agree to in the new Fannie Mae/Freddie Mac appraisal forms is: “I selected and used comparable sales that are locationally, physically, and functionally the most similar to the subject property.” Don’t attempt to circumvent that legal obligation.

Also remember that an appraiser is required to make adjustments to a comp’s price based on differences with the subject property. Adjustments can occur because of changes in market demand, physical differences in properties, or a location’s desirability. You can assist the appraiser by providing all details about the sale and about comps that closely match the property.

Remember who the appraiser is working for.

An appraiser’s responsibility is to the lender—not to the borrower, the seller, the listing agent, or the selling agent. This relationship is controlled by the Ethics Rule of USPAP, which prohibits an appraiser from discussing or disclosing an appraisal or the results of an analysis of value, repair costs, replacement costs, or other valuation factors with anyone other than the lender client, government agencies, and professional peer review committees.

If your client has an issue with an appraisal, contact the appraiser’s client (the bank) to see if that client will authorize the appraiser to discuss aspects of the assignment. Continuous calls to the appraiser issuing overt or covert threats won’t advance your cause. Professional conduct and factual, unemotional information will assist appraisers in fulfilling their legal obligations and earn you respect. Remember that an appraiser may be right on the money with a valuation, however unhappy you and your client may be with the result.

Appraisers aren’t perfect, but they have everything to gain by being thorough, accurate, and honest. Encouraging an appraiser to engage in illegal activity in this era of widespread mortgage fraud could lead to a sanction against you and even to criminal prosecution for you and the appraiser. No transaction is worth that.

Francois K. Gregoire

Francois K. Gregoire, AHWD, RAA (, is president of Gregoire & Gregoire Inc., St Petersburg, Fla., and 2022 chair of the National Association of REALTORS®’ Real Property Valuation Committee.