3 Solutions to overcome a low appraised value

January 31, 2024 | Posted by: Chad & Patty Southwell

Appraisals are a professional assessment of a property's worth.  Mortgage lenders require appraisal reports as a final word to deem value.  Reports can vary vastly depending on many factors, let's explore the basics of an appraisal and how to ensure your report is fair.

Value is assessed based on how like properties stack up to yours.  The report can only use MLS sales within three months of the date of the search.  Properties must be in the same area and comparables must capture as many similarities as possible.  For example, a 3 bedroom townhouse will be compared to other 3 bedroom townhouses sold in the neighborhood in the last three months.  Upgrades to the property are given favor and any property deterioration is given a strike to the value.

If your home was assessed and the value was much lower than you think is fair, you may have the opportunity to request a second opinion or relook at the document.  Alternatively, you could hire another company to appraise the property.  There are specific areas in which there is subjective reasoning and therefore, open to query.  Here are the main areas and possibilities for solutions in the event of an unfavourable value:

1. Ask for a copy of the report and explore if the comparables are strong.  Although this is a professional service, there is a subjective element to what someone deems superior or inferior or even the houses selected to draw comparison. Ask a realtor to assist you in assessing your home using the same parameters as the appraiser.  Realtors do this assessment on listings to determine a likely sale price.  The realtor is motivated to find the highest sales where the appraiser is more conservative.  Three or more MLS sales in the last three months will give you a ball park of actual value.  These could be provided to an appraiser as a way to support your claim.  Note, anyone working for you should be compensated fairly;

2. Sales cycles typically have stronger and weaker months.  The spring market will be the strongest sales, with closings in the summer, and therefor typically a late summer or early fall report will show MLS sales which are optimum.  This is the timing where you are most likely to see robust comps and prices; and

3. If your home is unique or custom an appraiser can expand the territory of the search for comps to like communities even outside the city.  They can also expand the time frame of the sales if it is a very special property.  Knowing this parameter will present you with a case to review an undesirable report. 

This is a professional service which does its best to be impartial.  Although we may think our homes are worth more it may be more sentimental than realistic, most of us don't really know the value as it measures up to the market.  At the end of the day the original report may likely be correct, in which case you could focus on timing or upgrades to increase value. 

Never order an appraisal yourself for the purposes of financing.  Mortgage brokers and lenders will not accept a report hired by the home owner.  Most lenders have certain companies they work with and will insist on third party impartiality.  

In a market where house prices are decreasing it is important to work with professional who understand how to manage each part of the process to ensure a positive outcome.  

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