For anyone involved in a real estate transaction, a home appraisal that comes in lower than expected can feel like a wrench thrown into the gears of a smooth closing. Whether you're a buyer, seller, or even a real estate agent, a low appraisal can cause stress and frustration, potentially putting the deal at risk. However, there is a structured approach to address this situation: submitting a Reconsideration of Value (ROV) request to the lender.
In this blog post, we’ll walk you through what a low appraisal means, why it happens, and how the ROV process can help you challenge the appraisal and potentially get a better outcome.
What Happens When an Appraisal is Low?
An appraisal is an independent evaluation of a property’s market value, typically ordered by the buyer’s lender to ensure the home’s price aligns with its worth. If the appraisal comes in below the agreed-upon purchase price, the lender may not be willing to fund the full amount of the loan, leaving a gap between the loan amount and the price of the home.
A low appraisal can lead to several potential outcomes:
Renegotiation: The buyer and seller may renegotiate the price based on the appraised value.
Increased Down Payment: The buyer could make up the difference between the loan amount and purchase price by increasing their down payment.
Reconsideration of Value (ROV): The buyer or seller may challenge the appraisal if there’s evidence the appraiser made errors or overlooked relevant information.
The ROV process is the most strategic way to address a low appraisal. Here’s how it works.
What is a Reconsideration of Value (ROV)?
A Reconsideration of Value is a formal request to the lender to review and reassess the initial appraisal report. It is a chance to present additional information or highlight discrepancies that may have impacted the appraised value. The goal is to provide enough compelling evidence to convince the lender to adjust the appraisal value to better reflect the true market worth of the home.
The Reconsideration of Value Process
1. Compile Your Case
Before filing an ROV request, you need to build a strong case. Here’s how:
Thoroughly Review the Appraisal Report: The first step is to carefully go through the appraisal document. Look for any factual inaccuracies, such as incorrect square footage, overlooked property features, or outdated comparables (comps).
Identify Misalignments with Market Realities: Sometimes appraisals fall short of capturing current market trends, especially in rapidly changing markets. Review the comps used by the appraiser to ensure they are recent and reflect similar properties in the same neighborhood.
Gather Evidence: This is where you need to be proactive. If you believe the appraiser missed important details, gather information that could support a higher valuation. This might include:
Overlooked Comparables: Identify other homes sold in the area that are more aligned with the property in question. Ideally, these should be recent sales within a similar price range and location.
Property Features: If the appraiser didn’t account for specific upgrades or unique features (e.g., a renovated kitchen or additional living space), these can play a role in increasing the home’s value.
Neighborhood Changes: If the neighborhood has experienced significant changes (new schools, parks, shopping centers) that weren’t considered, this could help justify a higher value.
2. Prepare Your Request
Once you’ve compiled the relevant evidence, it’s time to formally prepare your Reconsideration of Value request. Follow these steps to ensure your submission is clear, organized, and persuasive:
Clearly Articulate Your Reasons for the ROV: Your request should begin with a concise explanation of why you believe the appraised value is too low. Be specific, referring to particular errors or omissions in the original report. If you’ve found alternative comps, explain why they are more accurate than those used by the appraiser.
Provide Specific Examples: Supporting your case with concrete evidence is essential. Include the details of overlooked comps, provide photos or descriptions of missed features, and attach documents showing recent improvements or upgrades to the property.
Summarize Your Position: While it’s important to be thorough, try to keep your ROV request focused and straightforward. Summarize the key reasons you believe the appraisal is inaccurate, backing them up with the most compelling pieces of evidence. Avoid overwhelming the lender with excessive data that doesn’t directly affect the valuation.
Stay Professional and Objective: Keep the tone of your request professional and respectful. An overly emotional or accusatory tone can detract from the validity of your arguments. Instead, stick to the facts and let the evidence speak for itself.
What Happens After You Submit an ROV?
After you submit your ROV, the lender will review your request and supporting documents. From there, the lender may take one of several actions:
Review by the Original Appraiser: Often, the ROV will be sent back to the original appraiser to reassess the property based on the new evidence. This appraiser can choose to revise their original appraisal or stand by it.
Ordering a New Appraisal: In some cases, the lender may decide to order a second appraisal to ensure a fair and accurate valuation.
Decision by the Lender: Ultimately, the lender will decide whether to adjust the appraised value based on the information presented. If the evidence is strong, the lender may raise the appraised value, helping to close the gap between the appraisal and the purchase price.
Tips for a Successful Reconsideration of Value
Act Quickly: The closing process typically operates on tight deadlines, so submitting your ROV as soon as possible is essential to keep the deal moving.
Stay Informed: Keep communication lines open with your lender and real estate agent. They can provide insights on the appraiser’s thought process and help you better structure your ROV.
Be Realistic: While an ROV can help in certain situations, it’s important to be realistic about the likelihood of a value increase. If the appraisal was accurate based on market conditions, a reconsideration request may not lead to a significant adjustment.
Conclusion
A low home appraisal doesn’t have to spell disaster for your real estate transaction. By taking a structured and professional approach through a Reconsideration of Value, you may be able to present evidence that leads to a higher appraisal and keeps your deal on track. Although the process can feel like an uphill battle, it’s a valuable tool for buyers and sellers alike when the appraisal doesn’t align with market realities. Remember, the key to success lies in presenting clear, concise, and compelling evidence that supports a fair valuation of the property.
