If you dabble in the commercial investing industry long enough, there’s a good chance you’ll eventually find yourself on the receiving end of an appraisal you consider ridiculously low. Don’t flip out and threaten bodily harm. The appraiser is simply a human (imminently fallible) performing a job. They can and do make mistakes. Turning psychotic won’t help matters.
One of the major problems with a low appraisal is the lender will likely not approve the loan, leaving the deal in danger of falling apart. While you can’t arbitrarily toss out the appraiser’s opinion, there are options for a buyer who suddenly begins to wonder if he or she is about to seriously overpay for an income property or not be able to qualify for a loan at all.
1. Cancel the Contract: Almost every contract includes a contingency that allows the buyer to cancel if the appraisal comes in low. If the seller won’t budge on price or make other financial concessions to make the deal more palatable, just cancel the thing.
2. Negotiate: A motivated seller might be willing to renegotiate terms, assuming the unexpected low appraisal is an accurate reflection of the property’s worth. At this point a buyer has two things going them – the ability to cancel the contract and a professional opinion that the house is worth less than both parties thought. In a word – leverage!
3. Check the Paperwork: It’s not set in stone that everyone must accept the appraiser’s opinion with no recourse for objection. If the buyer has paid for the appraisal, he or she can certainly ask to see the paperwork. Appraisers are human and can make mistakes. Check the comps, square footage, and number of bedrooms listed for starters. Especially when it comes to comps, check that they are geographically relevant.
4. Ask for Another Opinion: Most people wouldn’t hesitate to seek a second medical opinion before undergoing major surgery, so don’t be shy about asking the lender to hire another appraiser. Yes, you’ll have to pay for it again but the spending an extra few hundred dollars might be the difference in being able to qualify for the house loan or not.
Jason Hartman reminds you to locate specific errors before challenging an appraisal. The fact that your opinion differs or you don’t like the style of his shoes won’t get you far.
The Commercial Investing Center Team