Top Ways to Defend Your Work When the Appraised Value Comes in Under Sales Price

This year we’ve seen intense homebuyer competition nationwide, with a record-breaking number of homes selling above asking price in March 2021. As a real estate appraiser, you’ve likely encountered assignments in which the purchase price is not supported by the available comps. So, what are the best ways to address complaints and requests in these situations? To find out, we asked appraisers, “What’s your top tip for defending your work when the appraised value comes in under sales price?” Here’s what they said.

What’s your top tip for defending your work when the appraised value comes in under sales price?

 

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Ways to prevent and prepare for complaints and requests

Many survey respondents emphasized the importance of making sure your work is as detailed and well-supported as possible—by means of careful comparable selection and analysis, thorough documentation, and clear explanation of why the available comps do not support the contract price.

Careful comparable selection and analysis

“Make sure your sales comparables are accurate and defendable.”

“Use the most current conforming sales possible.”

“Solid comparables.”

“Competitive listings.”

“Finding the most similar sales comparables.”

“Matched pair analysis of current similar sales in the subject neighborhood.”

“Comparative analysis.”

“Comparable selection with good analysis of differences.”

“Statistical analysis, market data showing superheated sales and consumer price index vs trending home affordability.”

“Market analysis and illustrations.”

Thorough documentation

“Make sure you validate the accuracy of the sales you use. So you can show your value without doubt.”

“Thoroughness. If you were thorough and documented all of the factors used throughout the appraisal process to determine value, you will easily be able to defend your work with facts.”

“Keep your file of market research, neighborhood trends and adjustment research up to date as of the effective date of your appraisal.”

“Make sure you have sales to support your opinion of value in your workfile. I also recommend including in the workfile sales researched that support why a higher value would not be supported.”

“Have a solid complete workfile. Good Data.”

“Have a strong workfile with every similar sale verified.”

“A very complete file including market analysis and comps.”

“Valid documents and backups.”

“Supported data that supports your conclusions.”

“Keeping a detailed workfile.”

“Make sure you have the data to back it up.”

“Document and keep all documentation in your workfile.”

Clear explanation

“My goal is to include enough clear and thorough information/support for my estimate of value that the reader is satisfied it’s correct and doesn’t require much follow up, if any.”

“Document your workfile with proof and explain the difference between price and value in the report. Also, summarize an appraiser’s ethical obligations to form an Opinion of Value and why the appraiser must comply with the Conduct Section of the Ethics Rule of USPAP.”

“Assuming nothing unusual about the listing history and contract, explain why the sales do not support contract price. Look up historical sales more than a year ago and compare with contract price.”

“Research how many offers are being submitted for purchases, and many times there are so many offers it is a plausible explanation of a sales price higher than the opinion of value.”

“Comment regarding differences. Pay particular attention to initial list price and number of offers received. Sale/contract price may be driven by desire to win rather than typical motivation.”

“Motivated buyers can increase sales prices beyond market value.”

“Cross your t’s and dot your i’s. Always make sure that every statement is explained clearly and backed up by your experience and market data. If you can’t explain it to someone on the street, then it either isn’t right or it isn’t clear enough.”

“Be able to explain both the strengths and the weaknesses of the comparable data.”

“Supply as much detail as to rationale as possible.”

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Ways to respond to appraisal complaints and requests

Several survey respondents gave advice on what to do or say if you do get complaints from clients about the appraised value coming in under contract price.

“Offering what they could do to make it a higher appraisal value is my number one tip.”

“Explain to the homeowner why and bring them more evidence on why it is under sales price.”

“Highlight specific information from the report justifying the opinion.”

“Tell the client that in a rising market, appraisals will almost always lag the market. This is because each sale has the potential to lead the market higher, but appraisers have to look at the sales that have already happened.”

“Tell the lender they don’t want to end up with an OREO property.”

“Request comparables used to value the home from the listing agent.”

“Ask for the comparables that were used to determine the listing price in the first place or just ask for better comparables. People will normally hang themselves with their own rope if you give them a chance. Arguing does no good in any case. If possible let them know before you finish that you are having problems and let them join the fun early. Ambushing them with a low number is not a good plan. If you are having trouble dealing with them work through a lender if possible. Ask questions and don’t be defensive.”

“Double check the appraisal, double check your sales. Explain that the comparable sales do not support the agreed upon sales price.”

“Redo your work! It pays to work hard, to provide the best.”

Examples of responses you could use

Some appraisers gave examples of specific wording that could be used to respond to client complaints. They provided the following examples:

“Based upon my experience and knowledge of the current market and location, my appraisal was an honest and fair appraisal given those factors.”

“Appraised value was provided in an unbiased opinion.”

“The estimated value is supported by sales of comparable properties.”

“The comparables do not support the sales price.”

“I came to my analysis by using the most recent sales, comparable to the similarities of the subject property.”

“Gee, let me take another look, if you have any recent sales similar and comparable to the subject, please forward them to me.”

General advice and key takeaways

Here are some additional tips and key things to keep in mind, according to our survey respondents:

“Remember an appraiser can only report the market. Many times a home can be overbuilt for the neighborhood and the seller wants the highest price the realtor can find to set a listing price.”

“It is not the purpose of the report to support or prove a contract to purchase.”

“Every property is different. There is no ‘top tip.’ You have to be able to explain yourself.”

“Keep your head up.”

“Be confident in your work. The data will speak for itself.”

Want more info on this topic? Check out our post, Pressure to Hit the Purchase Price: 5 Resources for Appraisers.

How do you defend your work when the appraised value comes in under sales price? Join the conversation! Follow us on Facebook, Twitter, and LinkedIn. Or, sign up for our newsletter to get a new survey question in your inbox each month.

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