Reverse Mortgage Appraisal Problems? Ask The Expert

April 21, 2014

About 6 years ago we had our home appraised for refinancing and it came in at over 210K. As seniors with no children we decided a reverse mortgage would be a wonderful solution to our money issues and I went on www.homes.com, entered our zip code and zoomed to our block which consists of 6 duplex houses. According to the website, each of the individual halves of those duplexes are valued at 179 to 181K, so we pursued a RM. The company sent an appraiser to our home (which we did not have to pay for), and she spent maybe 20 to 25 minutes looking through the home and taking pictures. Imagine our dismay when her appraisal came in at only 139K, which was not enough to cover our existing mortgage plus the home equity loan we’d taken out several years ago. We were turned down for the loan. Do we have any recourse? – Scott

Hi Scott,

The short answer is, “Yes,” you do have options. The long answer is that the effectiveness of the recourse will depend on various factors, so please forgive me as this response is going to be a bit lengthy.

Firstly, the appraisal process is more than just the physical inspection. The appraiser generally spends a considerable amount of time researching your property, the sales in the area, and your property’s sale history through public records long before visiting your home.

By the time the appraiser conducts the walkthrough of your property and measures things, they typically already have a good understanding of the market. The inspection serves to verify the condition, look for any upgrades/deficiencies or needed repairs, verify size and room count (as public records are often incorrect), and act as the lender’s and HUD’s eyes and ears in the field.

The appraiser will also perform a physical inspection of all the comparable sales chosen to ensure those properties are the most similar to the home being appraised to determine a value.

When you use an online valuation tool, they often do not consider individual property characteristics, specific neighborhood factors, or other influences that might affect values. Some online valuations are close, but we have seen some that are off by many thousands of dollars.

The appraiser will only consider valid sales within 4-6 months of properties similar to yours that do not require excessive adjustments to determine the value, or HUD will not accept the appraisal (there are provisions for older sales, but we won’t go into all that here).

For example, if your home is an attached home with 2,000 square feet, the appraiser cannot use a single-family detached dwelling with 3,500 square feet as a comparable sale. However, if you are aware of several sales of other homes like yours—attached and similar in size and condition—that sold for amounts higher than the $139,000 value the appraiser assigned, you have every right to rebut the appraiser’s value using factual information.

The information from the website is not considered adequate, as online sites often cannot differentiate between attached and detached homes, neighborhood factors, or influences. However, sales of other homes that closed in the last 6 months that support your claim to a higher value can be very useful.

To be beneficial, you must be able to show why your sales are more reliable indicators of value than the sales the appraiser used. These would include homes that are more similar, closer to your home, or sold more recently. If you find older sales that are farther away and not very similar or not more similar to your home than the ones the appraiser used, your chances of having the value raised will not be very good.

To be successful, you must be able to support that the sales you located that support the higher value are more similar, closer, and recent—not merely higher sales prices of other dissimilar homes. The appraiser can easily dismiss them by stating they are not as comparable as the sales he/she used.

Remember, the appraiser is the licensed “expert.” If it comes down to two different houses and it’s your opinion or the appraiser’s as to which one should be used, and neither is clearly more similar, newer, and closer, the appraiser’s education, expertise, and lack of emotional standing in the transaction will prevail.

You should have received a copy of the appraisal. Take a look at the comparable sales used and consider enlisting the aid of a local realtor to see if they are aware of any sales that fit the description I laid out above.

You may be pleasantly surprised to find some sales, or you may discover that the website you visited was unable to differentiate the nature of your property and was “averaging” your property with detached homes in the area, which appraisal practice does not allow. Either way, it would be good for you to know if you have any grounds for a rebuttal.

If you find that there is no room for rebuttal at this time, don’t give up! Keep an eye out for “For Sale” signs in your neighborhood in the coming months. It could be that there just aren’t any recent sales of your type of property available right now to support the higher value, but the next few may be just around the corner and may sell in that $180,000 range (or higher), and values tend to rise toward summer.

You can start again with a new appraisal after 6 months (I don’t know how long it’s been since your last appraisal, and I know you’d rather not incur additional costs, but this is a second option if the rebuttal doesn’t work). If you see any new “For Sale” signs, call on them to find out how much they are listed for. But even more importantly, check on them after they sell to find out the final price at which they closed.

The listing price may help you get a feel for what the values are doing, but it doesn’t really count until it’s sold and closed (after all, anyone can list a home for any amount they choose; the proof is in the meeting of the minds between an informed seller and an informed buyer when the house sells).

I wish you the best, and if we can be of assistance, please let us know.

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7 Comments on this Article

Tom M.
May 28th, 2024

I had an appraisal for a reverse mortgage that came in $165,000 less than a bank appraisal from a year ago. She appraised it at $510,000, whereas the bank's appraisal was $675,000. Real estate professionals have told me that property values have gone up, not down, and that her comparables were not accurate. The appraisal company told me it was up to the lender to contest it, and the lender said I should ask the appraisal company to change it. That approach did not go anywhere. So now I have to wait almost six months.

A different lender told me that if they took over the reverse mortgage, they could cancel the appraisal and start over. The original lender had already filed the appraisal with HUD.

What, if anything can I do?
Reply to Tom
- Michael Branson
  May 31st, 2024
  
  Hi Tom,
  Every borrower has the right to rebut the value of an appraisal, but simply having a previous higher appraisal will not warrant a reconsideration of value. To potentially achieve a positive result from a rebuttal, you must show that the appraiser made errors on the report that caused the value to be inaccurate. You mentioned that the sales she used were not comparable, but you need to explain why. To have the value reconsidered, you can't just say the sales she used were invalid; you need to show other sales that are more comparable, possibly sold more recently or closer to your home, that the appraiser did not use but should have.
  This is much easier in an area where the homes are mostly similar and there are many recent sales of those similar homes. If you live in a more rural area, or if the sales are older or vastly different (such as if all the recent sales are new homes on acreage and your home is a 50-year-old original build on a smaller lot), the adjustments are difficult, and the appraiser will be difficult to sway if there are no recent sales of similar homes that sold for higher prices than what the appraiser valued your home at. However, if there are many sales available that are closer to your home in size, age, and functionality than what the appraiser used, indicating a higher value, there is a good chance for a reconsideration of the value once those comparable sales are analyzed and considered.
  Additionally, if the appraiser made errors in the report, that would be grounds for a rebuttal. If the appraiser assigned the wrong number of bedrooms or bathrooms, incorrect square footage, incorrect lot size, etc., and if using the correct information would put you in a different class of sales comparables, that would be grounds for reconsideration. Certain amenities can make a significant difference that an out-of-area appraiser might miss, such as an ocean view, proximity to a golf course, or historic differences due to sales in one city versus another that a line on a map cannot explain. These are all factors that a good DE underwriter can also question, whether the appraisal has gone to HUD or not. HUD can require a second appraisal if they believe the value is not supported, but that's a different situation.
  I caution you that a prior higher appraisal is not a valid reason for a rebuttal of value, nor is anyone else's opinion. To have a chance for success, you must show that the appraiser made errors or that there is better information available to warrant a reconsideration of value. I am not sure who told you they would cancel the old appraisal and start over, but new lenders cannot simply cancel the existing appraisal and start over. HUD will not allow that, as it would enable borrowers to lender shop if they don't like the value they received from one. The appraisal and the value stay with the Case Number, and unless that lender has unresolved issues with the appraiser, the appraisal cannot just be canceled. The appraisal is delivered to the lender through the HUD online EAD System (Electronic Appraisal Delivery), and HUD sees the appraisal before the lender in every case. No lender can give a borrower an approval on a HECM reverse mortgage until they have HUD's approval on the appraisal. So, it's not a matter of the lender "filing the appraisal with HUD"; every lender must use the EAD system, and therefore, HUD always receives the appraisal before the lender.
  My suggestion is to work with your lender to see if there are current sales available to support a higher value. If there are, your current lender wants you to get the highest value possible as well. If they tell you there are none available, check with the bigger online sales engines yourself or with a local real estate salesperson. They are usually happy to help because they know if they assist you today, you may remember them tomorrow when you want to sell. Be critical when you compare. Don't get caught in the trap of comparing new or completely remodeled homes if yours is not in similar condition. If you find houses that support a higher value, present them in your rebuttal in a similar "grid" format as the appraisal itself. You don't need to be as detailed but keep those items in mind when comparing the properties.
  I wish you the best in your endeavors and advise against pulling your loan and going to another lender for the same or possibly even worse terms when you will be subject to the same appraisal for the same time period either way.
  Reply to Michael
Ernestine S.
June 29th, 2022

I have a question I was in the process of a reverse mortgage the appraiser appraised my home a surprising "high" amount which I think is good. Well, I was informed the program they placed me in fell through with others as well who were in the same program as me in the reverse mortgage process. He also said that a new program is coming into works by the end of this week? HMM sounds fishy to me? Since this program they placed me in as well as others fell through do I eat the appraisal fee they charged me or can I get some of it refunded to me back?
Reply to Ernestine
- Michael Branson
  July 6th, 2022
  
  Hello Ernestine,
  
  I am not sure who your lender was so I am definitely not "sticking up" for anyone but I can definitely tell you that with all the recent inflation, sudden interest rate increases and the shakiness of some of the support for proprietary reverse mortgage products for investors who buy the loans and those who buy the bonds backed by the loans, the pricing has increased for the jumbo or private programs recently and the parameters of the programs have changed.
  Some lenders will allow borrowers to request a refund on some of the fees for programs that have changed substantially but they are not required to do so before you have a firm commitment as they have no control over the availability of the programs.
  I would suggest that you ask your lender if they do offer any refunds of any of the fees you already paid for programs that were discontinued or substantially changed after you applied though, it can't hurt.
  Reply to Michael
Doug Davis
July 28th, 2015

Application complete. Credit check complete, waiting on appraisal for over three weeks.
We're very rural and comps are few and far between. Called originator, claims AMC wants more to travel to us. Said they'll pay it, but I'm not convinced this is the case. My theory is appraisers can't get suitable comps to comply with fha/hud rules. How long is too long to wait for an appraisal?
Reply to Doug
- Michael Branson
  August 3rd, 2015
  
  Hi Doug,
  Great question! I don't know where you are located, but this is sometimes a very real issue. Some areas of the country have a much more cyclical lending and purchase cycle due to weather than others. We know that in areas that experience heavy snowfall, the appraisals are running extremely long right now because this is their heavy season. Some areas of the country have been heavily impacted by the storms this year. Not only do appraisers have to do the initial appraisals, but they also have to do re-inspections after all disasters including flooding, tornadoes and other wind storms, etc. and many times that can take multiple trips.
  And then you do have the situation where there are just not enough FHA-approved appraisers in a given area and due to the appraiser independence rules, appraisers may not be willing to travel as much when they have to work for less money due to the fact that the fee is most often being split with an appraisal management company (AMC). But the bottom line is "too long" is defined by what is too long for you. Your lender can check with other AMC's to see if they have other appraisers in your area who can complete the assignment more quickly but in the end, if the problem is one that is driven by the area and not the AMC, cancelling the assignment with one and starting new with another may not achieve the desired results.
  I would suggest that you ask the lender to be very frank in their discussion with the AMC about the delay and the availability of the comparable sales and to do so in writing. That way you could voice your concern about additional delays and the availability of sales comparables in advance. At least that way there will be a record of the conversation but in the end, I honestly don't know if any appraiser has even gone as far as to look for sales as of this time. If there is a problem with getting an appraisal, now is the time to iron it out instead of after you order it and then find out that there are incessant delays (and unfortunately, that sometimes happens outside the lender's control as well).
  Reply to Michael
Bev Koribanic
November 10th, 2014

I too had a revers mortgage application....I am a real estate agent and was expecting the appraisal to come in at about 80K because the comps I did came in about 110-120K and I need the reverse mortgage to do some repairs so I figured 20 - 30K difference. I was in shock when I found it to be only 60K so I looked at the compas taken. My house is a 3 bedroom 1 bath and a single car garage with no dining room but a larger kitchen. I found 4 matches on my own....the appraiser did it for a 2 bedroom 1 or 2 bath home and the stated no rental history when it was rented....I have no recourse until the appraisal goes away which is 4 mos from now. So it is similar to the one above but most people don't know how to read appraisal reports and what criteria is needed or required and they fall prey....I fell prey and I do know...
Reply to Bev