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Section 1472 of the Dodd-Frank Act, known as
Appraiser Independence, was established as part of
the financial reforms enacted after the last housing
crisis. It sets restrictions on mortgage professionals
in their communications with an appraiser.
This new process is an attempt to eliminate implied
pressure on the appraiser to inflate values that may be
unjustified based on sales comparisons. These rules
are taken very seriously and, with the added pressure
on appraisals in today’s accelerated marketplace, it’s
important to heed these rules.
Last, be prepared and have a plan B. Set expectations for your clients should a low appraisal come in.
Is this home the perfect home for your client’s
family? Are they content, having already agreed to
the price and terms of the purchase contract and
mortgage loan? Are they in an adequate cash position that would allow them to pay over appraised
value or accept the decreased equity in their home
The homebuyers may have already created their
Pinterest board with pictures of their new home and
have their current home packed up in boxes. They
may already be daydreaming of where they will put
the pool table and entertainment system, or have
designers lined up to measure the new walk-in closet.
Understand that this is an emotional time.
Now, let’s say the appraisal does come in low. How will
you advise your client? First, you have to keep a calm
and cool head. Brace yourself for the irritated calls from
your real estate partners, some of whom will likely
lay into you about “the comparables that should have
been used,” or the incompetence of the appraiser.
In this situation, arguing, complaining and blaming
are not forward motion. In addition, we all know that
appraisal appeals are rarely an effective option for
changing the predicament.
Allow the Realtors to take the lead in renegotiating
the purchase price to something comfortable for both
parties. Explain to the buyer that this is a situation that
occurs often in today’s changing market and offer a
reassuring tone that helps them not to panic.
Perhaps the downpayment and terms will not
change, but only the equity is reduced, and the buyer
is fine with that. Depending on your market, attempting to renegotiate the price could be risky if there is
another family waiting in line with a backup offer to
scoop up the new home. It can be difficult to convince
your buyer of this, and certainly it’s a delicate dance
If a Federal Housing Administration (FHA) loan is
involved, it often helps to caution the listing agent
about the nature of FHA appraisals, which stick with
the house. Page 128 of the FHA Handbook includes
highly specific and detailed requirements about how
the regulators will define value, account for sellers’
concessions and comparable adjustments, and how
the appraiser’s judgment will stand. In addition, based
on the way FHA loans work, future buyers needing
financing also may be stuck with the FHA-appraised
value, so it would not be productive to cancel this
contract and re-list — unless the next buyer is using
Fortunately, the low-appraisal challenge is an indication of a healthy real estate market and thriving
economy. The values will catch up to the demand
as more transactions occur, and more comparable sales are available for appraisers to use in their
“Arguing, complaining and blaming
are not forward motion.”
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