Resolving appraisal dilemmasCharlie W. Elliot Jr.appraisals, appraisal guidelines, alt-A loan, underwriters
Most, if not everyone, in the mortgage business have had reason
from time to time to question the work of appraisers. There are
various reasons for this, some warranted and some perhaps not.
Problems can range anywhere from fraud, blatant and/or intentional
errors to simple differences of opinion. In cases where the
appraiser's opinion of value is at question, the matter could
simply be that the property is not worth enough to make a deal
work. In others, there very well may be mistakes that will require
investigating. Many times, if not most, issues can be resolved by
discussing variances with the appraiser. When this does not work,
other measures may be necessary. Listed below is a summary of some
of the most common appraisal dilemmas confronted by lenders. For
each dilemma, suggested solution(s) are offered.
1. The appraiser did not call me and tell me that the
appraisal was coming in low. Now, I am stuck with an appraisal,
which I cannot use, and my client is out $350.
I am afraid that this one cannot be blamed on the appraiser.
Uniform Standards of Professional Appraisal Practice do not permit
the appraiser to accept an assignment with contingent value
conditions. I do not doubt that some appraisers may have canceled
assignments in midstream; however, it is a dangerous practice. Both
the lender and the appraiser open themselves to questions of fraud
in such cases.
2. The underwriter says that the gross adjustments in the
appraisal are too large to meet Fannie Mae appraisal guidelines.
Unless the appraiser changes the appraisal, no closing can take
place. You would think that the appraiser would know
If the appraiser made a data collection mistake or a typographical
error, she has an obligation to correct the appraisal report.
However, that may not be the case. Some properties simply do not
conform to the guidelines. The guidelines were established to
filter out properties that do not conform and, in such cases, the
appraiser is right by calling a spade a spade.
3. On a home purchase, the contract price is $200,000, yet
the appraiser appraised the property for $190,000. I have a copy of
an old appraisal, which was prepared for a home equity loan,
stating a value of $225,000. Would the facts that the property is
selling for more and that it was appraised for more in the past not
mean that the property is at least worth the selling
This is a very common but sticky wicket. Who is to say that the
first appraisal was not prepared in error or intentionally
inflated? The focus of the solution must be on the correct
appraisal, not the sales contract or previous appraisals. One of
the best solutions of which I am aware is that of an appraisal
review by another appraiser. This is performed on a standard
appraisal review form in writing. The review could serve to verify
the value estimate of the subject appraisal or to find fault with
it. Typically, if the appraisal passes scrutiny, it stands; if not,
the review appraisal, an amended value estimate or a new appraisal
may be ordered to resolve the matter. This is usually sanctioned by
4. The appraisal is on the wrong form. My property is a
condominium and the appraisal is on a single-family
Assuming that the client did not specify a single-family form,
there is no excuse for this. The appraiser should redo the
appraisal on the proper form at no charge. It is generally expected
that the client ordering the appraisal will specify which form is
needed. When there is no form specified and the appraiser takes it
upon herself to select a form, it becomes the appraiser's
responsibility to get it right.
5. The appraiser came up with different square footage than
the real estate agent and the property tax records did. My lender
will not close until this issue is resolved. The appraiser says
that he measured the house twice and that he is right.
There are two options here. The first would be to order another
appraisal and get a second opinion. Any variances could be
reconciled between the appraisers. The second would be to
personally go to the house and very carefully measure it, comparing
your dimensions to that of the appraiser's. If the appraiser is
wrong, she is obligated to make the correction at no charge. 6.
I am attempting to make an alt-A loan in the amount of $1.2
million, and the lender required two appraisals. One appraiser
appraised the house at $1.4 million and the other appraised it for
$1.15 million. The lender insists upon averaging the two appraisals
to obtain a final value indication, which in this case will not
support the required 90 percent loan-to-value percentage. I think
the second appraiser is low. What can I do?
My experience tells me that most underwriters will not simply
permit a third appraisal unless it can be demonstrated that the
lower appraisal is flawed. Doing so would smack of appraiser
shopping and could be considered fraud. An appraisal review on the
lower appraisal by a third appraiser would be a suggestion. If the
lower appraisal is found to be flawed by the reviewer, either the
appraisal review value indication or a third new appraisal may be
used to average with the higher appraisal. Again, this will likely
be a decision that the underwriter makes.
7. I am involved in a situation where I have observed that
the appraiser cited comparable sales in his appraisal that do not
exist. Stated another way, he manufactured the comps. What should I
This is a serious charge and it must be dealt with accordingly. It
is assumed that at this juncture you have no pending loan
transaction relating to this appraisal. If you do, order a
completely new appraisal from a disinterested appraiser and start
anew with the transaction. It is very important that this appraiser
be held accountable for any violations of the Uniform Standards of
Professional Appraisal Practice. My suggestion would be that you
report the matter in writing to the state appraisal board in the
state where the appraiser is licensed to perform appraisals. In the
event that you have evidence of or suspect fraud, turn the matter
over to the FBI for investigation. This should also be in the form
of a complaint and should be in writing. All complaints should be
sent via certified mail.
The above-suggested solutions are not offered as the only
remedies available to resolve appraisal challenges, as all
situations have somewhat different circumstances. They are offered
as ideas, which have proven to resolve similar problems in the
Charlie W. Elliott Jr., MAI, SRA is president of Elliott
& Company Appraisers, a national real estate appraisal company.
He can be reached at (800) 854-5889, [email protected]
through the company's Web site at www.appraisalsanywhere.com.