“Appraisal Shock” is when you find out that appraised value is lower than you expected. My advice on how to handle appraisal shock is the same as my advice on what to do after any appraisal is completed. First things first, ask for a copy of the appraisal and read the report. The appraisal is filled with information about the home and the neighborhood and can tell you a lot about what is usually the largest single investment for most people.
Appraisals and appraisal orders involve people and people can make mistakes. So to start with check the basic information.
Is the house in the pictures the property that is being appraised? Is the address reported the right property? Is the lot or land size in the appraisal the same as what you expected? Is the house size or living area the same as you thought? Is the number of bedrooms and baths what you expected?
The number one cause of appraisal shock is differences in the size of a house and the second most common problem is differences in the size of the lot, both of which can be simple mistakes.
Most residential appraisals rely on comparing recent sales to the property being appraised. These sales should be in the neighborhood or nearby and similar in lot size, living area, room count, design, and quality.
When reading the appraisal check that the sales price, date of sale and other basic information about sales is the same as found in the MLS. Ask yourself if these sales are really similar to the property being appraised. If you are not sure, check the MLS and the public records for sales that you may be a better comparison.
If there is a problem with the appraisal prepare a letter asking the lender to review the appraisal and have the appraiser explain why any problems. The letter should include a list of any problems with the basic information and with the sales used, if any. Provide copies of the MLS sheets with the details of any sales you believe are better and ask that they be considered.
The lender will contact the appraiser to have your questions answered. A reputable appraiser will correct any problems and explain why there may be a difference. If in the end you believe the appraisal has not been done correctly ask the lender if a new appraisal can be ordered or what else can be done.