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.

Recommended Links:

• The Reverse Mortgage Appraisal Process
• Reverse Mortgage Appraisal Guidelines: Fees, Rebuttals & Disputes