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If you're buying or refinancing a home, your mortgage lender will likely require a home appraisal to ensure the loan amount isn't more than the home's market value. These appraisals are generally reliable and don't impact the mortgage loan, as the appraised home value usually matches or exceeds the contract price.
In some cases, however, home appraisals are inaccurate and contain errors—such as the wrong square footage or school district—which can change the valuation. Around 8% of home appraisals are lower than the contract price, according to Fannie Mae, which can impact the loan approval process and a successful home sale. Rocket Homes reports that 12% of sale contracts fell through due to appraisal issues.
Fortunately, you can contest a property valuation if you disagree with it. Here are six steps to dispute an appraisal you believe is unfair or inaccurate.
1. Request and Review the Appraisal Report
As a homebuyer, you have the lawful right to receive a copy of the appraisal report, according to the Consumer Financial Protection Bureau. Usually, the seller doesn't automatically receive a copy of the home appraisal since the buyer pays for it, but they can request a copy from the buyer's agent or order their own independent appraisal.
If you suspect the home's appraised value isn't fair or accurate, carefully review every detail in the appraisal report to help determine why the valuation may be inaccurate. Start by making sure the main details of the property are correct, including the square footage, lot size and the number of bedrooms and bathrooms. If you discover erroneous data, contest it.
2. Check the Comps
One of the most important factors appraisers consider when calculating your home's value is the comparable properties, or "comps," that have recently sold in your area. Sometimes, however, these comps can lead to an inaccurate appraisal. For example, if you're in a hot real estate market with rapidly increasing home values, an outdated comp may not accurately reflect the current market. The comps could also be incorrect if they're not in your neighborhood or aren't similar in size, condition and other key features.
3. Provide Updated Comps if Necessary
Consult with your real estate agent to determine if the comps in the appraisal are accurate. If the report contains discrepancies, ask your agent to provide updated comps that weren't considered in the original report.
Remember, buyers and sellers have a shared interest in the property valuation being near or matching the contract price. This is especially true if the sale has an appraisal contingency, which is a clause in the sales contract that allows the buyer to terminate the contract without consequence if the home appraises below the sales price. As such, both the buyer's and seller's agents can work together to compile a list of homes that more accurately reflect the home's value and justify a reconsideration of value from the lender.
4. Contact Your Lender to Dispute the Appraisal
If you have the comps and other supporting information that demonstrate the appraisal is inaccurate, contact your lender to dispute the home appraisal, often known as a reconsideration of value, or ROV. Your appraisal report may include instructions for requesting an ROV.
Be prepared to support your contention by pointing out errors, omissions or other evidence indicating the appraisal should be reconsidered. The ROV allows you to request further details or explanations for the appraiser's valuation. You may also request that the appraiser correct the documented errors you find in the appraisal and consider other relevant information, including updated comps, to improve the accuracy of the appraisal.
It's important to note that home appraisal discrimination is forbidden according to the Fair Housing Act and the Equal Credit Opportunity Act. If you believe a low appraisal is the result of discrimination, you may contact the Appraisal Complaint National Hotline at 877-739-0096. Similarly, if you believe your lender is relying on a biased appraisal, you can report it to the Department of Housing and Urban Development.
5. Request a Second Appraisal
Lenders are generally reluctant to reconsider an appraisal value, but they do reevaluate a valuation when it meets certain conditions. Generally, the original valuation must be at least 2% below the asking price—or up to 10% lower in challenging market conditions—for a reconsideration of value, and the miscalculation must be supported by evidence.
If the appraiser won't reconsider their valuation and you have evidence that shows the report is inaccurate, you may send a request letter to the lender to order a second appraisal. The lender may or may not grant your request, and it's possible a new appraisal could result in a similar estimation of the home's value.
The Bottom Line
Disputing a home appraisal could result in a correction to the home's value or lead to a second appraisal. It's worth noting, even if you're unable to change the valuation on the appraisal, you may still be able to successfully buy or sell the home.
For example, the buyer or seller could lower the sales price to align with its appraised value. Alternatively, the buyer could increase their down payment to minimize or eliminate the gap between the appraisal and the sale price. Another option is for the seller to agree to concessions—like paying for closing costs—to help the buyer cover the appraisal gap.
Bear in mind, it's critical to mind your credit when you're purchasing or refinancing a home, as any significant changes can derail the mortgage approval process. Consider signing up for Experian's free credit monitoring to help you identify and resolve issues before they become a problem. You'll receive real-time alerts when key changes occur, including new inquiries, accounts and any suspicious activity.