Everything is in place for your client’s transaction, but the appraisal came in low; what can you do? Michael Hobbs writes about the value of an ROV.
Every Realtor has received “that dreaded phone call.”
You know the one. The call that comes from the buyer who was so eager to purchase your client’s listing, who submitted a timely offer that was accepted and who then, as their last step, had to secure a mortgage. To secure that mortgage, all that was needed was the lender’s approval and an appraisal. Turns out that although they did get approved for the mortgage, the property did not appraise for the contract price, and now your deal is at risk of appraisal-cide.
So how do you calm your nerves and potentially resuscitate your transaction? By submitting a thorough analysis of your research in the form of an appraisal reconsideration of value (ROV).
Submitting a Reconsideration of Value
According to HUD, “a request for reconsideration of value (ROV) is not an automatic step for a mortgagee to take when the appraised value is less than the sales price of the property, unless the mortgagee has sufficient evidence to support a higher value.”
The premise of a successful reconsideration is that appropriate, new data be given to the appraiser. Not all stakeholders have the wherewithal to evaluate what constitutes appropriate (versus inappropriate), but after reading this article and following these steps, you will.
When you submit a legitimate ROV with pertinent data, it warrants the full attention of the appraiser. The ROV is certainly no guarantee of good results. But, it does give you and your buyers a shot at a higher appraisal value and a successful purchase (or refinance).
So what constitutes sufficient, appropriate evidence for a ROV? Here are five things to include:
- Providing and explaining why additional sale(s) not used in the appraisal are more similar to the property and a better indication of value.
- Communicating specific information about competing sales, which may not have been known to the appraiser and could influence value (such as the home having a poor floorplan, extensive deferred maintenance or maybe the Realtor just didn’t put the photos in the MLS).
- Correcting square footage, bedroom/bathroom count, finished basement details or other primary characteristics of the home; provide the source of the information also.
- Identifying competing sales that were closer or transacted more recently than those used in the appraisal to support rising prices.
- Highlighting errors in the report that may affect value, such as: incorrect upgrades, zoning, concessions or unobstructed views to accentuate property appeal.
Additionally, there are three things to avoid in a ROV to avoid appraisal-cide:
- Don’t throw the CMA kitchen sink – that is when you print out and submit a CMA for the whole area and do not identify the two or three best sales not used in the appraisal, and explain why they are better indications of value.
- Don’t complain about the selection of comparable sales, whether distressed or conventional, if you don’t have better evidence that is more recent and pertinent.
- Don’t criticize the appraiser; instead, criticize the appraisal.
In summary, there are persuasive and discouraged approaches for preparing a ROV. Similar to CPR, when done well, an appraisal reconsideration request can resuscitate your transaction and avoid appraisal-cide. Go save some transactions!
Michael Hobbs, SRA, LEED GA, RAA is a speaker, educator, author and president of PahRoo Appraisal & Consultancy, (PahRoo.com, 773-388-0003), a consulting and appraisal firm that specializes in residential and commercial real estate and the education of green and energy efficient adoption.