How to Contest a Low Appraisal

How to Contest a Low Appraisal

When a bank appraisal comes in low – more likely to happen in the kind of market we are in right now, with price jumps every quarter – buyers (and their sellers) are at a loss on how to proceed. The common wisdom is that, no matter how far off base, it’s just about impossible to successfully challenge a faulty appraisal. As noted in a recent New York Times article buyers are advised that their only realistic options are to either put more money down or turn to another lender.

Successfully challenging a low appraisal isn’t easy, but it can be done.  Recently I persuaded an appraiser to revise his appraisal of two condo units (both on high floors, with terraces) that the buyers planned to combine. Here’s what I did:

I reviewed the appraisal and quickly saw that the appraiser, who was based outside the city and not completely up-to-speed with Manhattan’s market, made several errors: 1) he underestimated the value of terraces, 2) he didn’t properly factor in room count when calculating price per square foot (ppsf), and 3) he used comparable sales that were, in most cases, poorly selected.

Because lenders and their appraisers are so resistant to revising appraisals, I knew I had to build a strong case.  So, along with writing extensively on the above issues, I backed up my rebuttal with information from the Real Estate Board of New York (REBNY) and Jonathan Miller, president and CEO of the appraisal and consulting firm Miller Samuel.

  • To address the terrace issue I provided an article by Jonathan Miller on how to calculate the value of outdoor space. I then explained how each terrace should be properly valued. (A terrace off the living room should be valued at 50% of the unit’s ppsf, and a terrace off the bedroom – a less desirable location – at 33% of the unit’s ppsf.)
  • For the room count/ppsf issue, I included a chart outlining how REBNY calculates room count, and a chart from millersamuel.com showing that even the potential for an additional room enhances value. I then corrected the room count for the subject condos and each of the comparable units in need of revision, and I adjusted the ppsf accordingly. (The number of rooms, or potential rooms, increases ppsf.)
  • Lastly, I commented on each of the 7 sold units the appraiser used to compare with the subject condos.  Unlike the appraiser, I had actually viewed the apartments and was familiar with their backstories. The room count for some units was incorrect, others were on very low floors, lacked views and/or light, or had inferior layouts or locations. I provided several more appropriate comparable sales and explained why they were more supportive of the true value of the condo units.

After reviewing my five-page letter, the appraiser agreed to revise his appraisal, and the lender then increased the amount of the loan. The buyers were greatly relieved that they could borrow what they needed for the purchase.

Of course, the best strategy when working with an appraiser is to point him in the right direction from the start. I always meet the appraiser and bring along information on relevant sales, including photos, floor plans and my written comments. I may also provide Information on units with signed contracts (especially useful when prices are on the rise) and a list of any renovations or upgrades to the property.

My best advice to anyone who wants to refute a low appraisal is to enlist the help of an experienced broker. To succeed it’s critical to have someone on your side who is familiar with the appraisal process and has first-hand knowledge of current market activity, recent sales, and the many nuances that affect property values.


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