Hello Sindhura and thanks for your question.

The new appraisal guidelines set up by the HVCC (Home Valuation Code of Conduct), promulgated by the Attorney General in New York and adopted by most lenders on May 1, 2009, have caused may homeowners and buyers to experience exactly what you are describing right now--lower than expected home values. In some cases, the valuation is only slightly lower, but here in California and in areas hard hit by foreclosure and short sale properties, the valuations can be significantly lower than the sales price of the home.

If this happens, you have a couple of actions that you can take: 1) contact your lender and ask for an valuation review or 2) you can switch lenders, and request another appraisal.

The valuation review process will require the appraiser to review the information used in the compiling the first appraisal. At this time, your Realtor may submit comps that may not have been considered in the first appraisal, however, the appraiser is under no obligation to accept the comps and, because these are supposed to be "arms length" transactions, there may even be some resistance to accepting any proffered comparables. If the appraiser turns down the request and sticks by the original numbers, then the seller can agree to lower the price or you will need to come up with additional funds to cover the difference between what the lender will provide and the original sales prices of the home. Whatever you do, however--and I am speaking from personal experience only--do not request a second valuation review as this may trigger a "drive by" review of the home that is most likely to lower the appraisal value even further.

If you choose the second alternative, to go to a different lender for a loan, you can request another appraisal. However, this time, ask that the AMS (Appraisal Management Service) company who assigns appraisal tasks to individual appraisers provide you with an appraiser who is knowledgeable in your area and not one from another part of the state. Although the AMS does not have to acquiesce to your request, they often do, so make the request.

Good luck and for more information about the new HVCC, check out the HVCC's FAQ sheet at https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/…

Sincerely,
Grace Morioka, SRES, e-Pro
Area Pro Realty
San Jose, CA

Hi Sindhura,

Are the errors in the "comparable sales" section of the report and do they affect the appraised value? If so, I would definitely contact the appraiser and have the report corrected. The suggestion below to provide recent comparables sales that could increase the valuation is valid. However, those sales need to have occurred within the last 90 days. Did you offer full asking price? If a valid appraisal comes in lower than, yes you can use this to negotiate down the price.

Also, are you qualifying for a conventional loan? If so, due to new appraisal guidelines this appraisal was ordered through an AMC (3rd party scheduling company) which keeps half of the fee and only pays the appraiser $200. We have found that the appraisers willing to take this work are doing so because they aren't the best appraisers (you get what you pay for). The quality of appraisal work has been hit because even the good appraisers don't want to spend as much time on each appraisal because the AMC is keeping half of their fee!

I hope this sheds more light....
Best of luck,
Tara

Tara Steinke
Residential Sales and Appraisal
Serving all of San Diego County
619-384-6014
SDRealtor.Tara@gmail.com

First of all, it may not be such a bad thing to have the appraisal come in lower than the selling price.

It can give you some leverage to get the price lowered. Assuming you are working with an agent or broker, I would suggest speaking with them and have them negotiate with the seller to get the selling price lowered to the appraised value.

I have been successful in this before, most recently, my client (the buyer) offered and got accepted $235,000 for a condo in Poway. When we got the appraisal, it only appraised for $200,000. I went back to the seller’s agent and negotiated a price reduction to $200,000. This saved my client $35,000 or about $200/month in payment

Jay Gedanken
Broker Associate, REALTOR
SELLSTATE Next Generation Reality
858-605-5839
jay@saveyoucash.com

Appraisers are very cautious in this marketplace. We have had several appraisals come back less than sale value. The bank takes the appraiser's word. You can ask if you can provide comparables that might help the appraiser reevaluate your purchase price. You can provide a list of errors and see if the appraiser will readjust the value. You can come up with the difference in cash between the appraised value and your sale price if you are willing to pay over the appraised value. You can ask the seller to reduce the price to the appraised value. The key is the appraiser. If the appraiser has done his or her homework, and since appraisers and banks feel we are still in a declining market, you will have difficulty in forcing an appraiser to do anything they are not comfortable doing. Ask your lender if there are any other options.

Sharyn