5 Ways Builders Can Prevent Low Appraisals
If you’ve ever had an appraisal come in well below the hoped-for sales price of a new construction home, this is the guide you need. From challenging inaccurate reports to communication tips, here’s how builders can prevent low appraisals.
Steer your customers toward specific lenders. The best way to deal with a low appraisal is to prevent one in the first place. You can discourage bad appraisals by encouraging customers to choose lenders that adhere to best practices when selecting appraisers. That said, you can’t do this unless you know how lenders select their appraisers. Since every lender has its own guidelines, you will need to investigate each one. Sit down and have a candid talk with specific lenders about their processes, the market and your homes. Once you know how each lender operates, you should have a pretty good idea of where to steer your customers.
Request a second appraisal. Appraisers must abide by a code of ethics, which says they must provide accurate details in their reports. If you believe a report contains errors, notify the lender and request a second appraisal. You will need to prepare supporting information and provide the lender with everything you gave to the appraiser. This can be a rewarding strategy if you are confident the appraiser undervalued a property. Just bear in mind the entire challenge process could take between one and three months, depending on the lender.
Don’t be afraid to make demands. Many builders and real estate professionals are surprised to learn that lenders are not required to select appraisers at random or use appraisal management companies (AMCs). With this in mind, it’s a good idea to ask a lender to use appraisers who have geographic competency, which means they have experience in your specific market. You should also specifically request that the lender use an appraiser who is qualified to value new construction and is familiar with energy-efficient building values.
Talk to the appraiser. Contrary to what you might have heard, it’s perfectly ok for builders to communicate with appraisers. As a builder, you can and should provide an appraiser with specifications for the home, details about energy-efficient features, information about the materials you used and the reason you used them, and the way buyers respond to certain material selections. You should also provide market and absorption information, along with the sale price for the property. Remember that appraisers are unbiased participants in the sale process, so there’s no reason to withhold information they are going to ultimately find out anyway.
Ask for an early appraisal. The longer you wait for an appraisal, the less you can do if it ends up being lower than what you expected. Instead of including the appraisal as part of the closing process, mandate that it be done during the early stages of construction. This way, if you find out you have a problem, you can do something about it. While most appraisers would prefer not to do their jobs based on specs and plans; they will typically go ahead with the appraisal if you request it earlier in the construction process.
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