Discovered a major error in my appraisal - now what?

[stencil]

Okay I'm going to try to be as brief as I can. We closed on a refi in June and the lender did an appraisal of course. The appraisal came in very low much to my shock, and even the lender's initial shock. We purchased our house at $329,000 and this appraisal came in at $260,000. The lender said they would "talk to the appraiser and get it adjusted", which of course the appraiser did not do because he stood by his appraisal. I wound up having to get PMI for the house which was very frustrating, but we were still saving significantly on payments because of these super low interest rates.

Well during the process of having our taxes adjusted (since we're currently paying taxes on a valuation of $354,000!) the attorney said the appraisal just didn't add up and I should double check it. In doing so I just discovered that the square footage reported on the appraisal is 1368 sq ft, which is WAY off. I checked our appraisal from when we purchased our house 3 years ago, and the square footage is listed at 1820. I measured the house and also checked with identical models, and 1820 is the correct number. It appears the appraiser made a mistake on the dimension of the house. Here's his calculation:

And here is the old appraisal:
Link to calculation from old appraisal

You can see the difference in the appraisals is over 450 square feet. The difference was that thew new appraiser labeled the length of the house as 56 feet when it is actually a little over 76 feet. I could kick myself for being so dumb and not noticing this during the refi. But now I have questions:

1) What is the proper procedure for having the appraisal corrected? I am sure I should not be paying PMI, but should I work with the lender? The appraiser? Is there any hope at all that an honest mistake can be honestly corrected?

2) How much would a mistake like this change the valuation of the house? This appraisal is almost $70,000 lower than the one we had done 3 years ago. The previous appraisal was $354,000. Even if the house was valued at $285,000 I wouldn't need mortgage insurance. What do you think the true valuation of the house should be?

Thanks for reading such a long post, any advice or suggestions would be greatly appreciated!

 

[RSW]

we can't give an opinion of value on your home as that would be an appraisal. You should contact a local appraiser and have another appraisal done on your property. You could then contact your lender and ask them to reconsider and to provide the correct square footage to the original appraiser. you could also ask the lender to have the appraiser come back out and check the measurements again. You can also file a complaint with the State appraisal board.

 

[Pittsburgh Pete]

Sounds like you should be able to ditch the PMI. Can't cite you any specific numbers as I don't know your house nor do I know your market. However, the appraiser underestimated your SF by nearly 25% (that if very signficant) while you only need a 9.6% increase in value to get you from the $260,000 to the $285,000 you need to jettison the PMI.

Appraisers make mistakes sometimes and sounds like this guy/gal made a doozy!

 

[CANative]

Okay I'm going to try to be as brief as I can. We closed on a refi in June and the lender did an appraisal of course. The appraisal came in very low much to my shock, and even the lender's initial shock. We purchased our house at $329,000 and this appraisal came in at $260,000. The lender said they would "talk to the appraiser and get it adjusted", which of course the appraiser did not do because he stood by his appraisal. I wound up having to get PMI for the house which was very frustrating, but we were still saving significantly on payments because of these super low interest rates.

Well during the process of having our taxes adjusted (since we're currently paying taxes on a valuation of $354,000!) the attorney said the appraisal just didn't add up and I should double check it. In doing so I just discovered that the square footage reported on the appraisal is 1368 sq ft, which is WAY off. I checked our appraisal from when we purchased our house 3 years ago, and the square footage is listed at 1820. I measured the house and also checked with identical models, and 1820 is the correct number. It appears the appraiser made a mistake on the dimension of the house. Here's his calculation:


And here is the old appraisal:



You can see the difference in the appraisals is over 450 square feet. The difference was that thew new appraiser labeled the length of the house as 56 feet when it is actually a little over 76 feet. I could kick myself for being so dumb and not noticing this during the refi. But now I have questions:

1) What is the proper procedure for having the appraisal corrected? I am sure I should not be paying PMI, but should I work with the lender? The appraiser? Is there any hope at all that an honest mistake can be honestly corrected?

2) How much would a mistake like this change the valuation of the house? This appraisal is almost $70,000 lower than the one we had done 3 years ago. The previous appraisal was $354,000. Even if the house was valued at $285,000 I wouldn't need mortgage insurance. What do you think the true valuation of the house should be?

Thanks for reading such a long post, any advice or suggestions would be greatly appreciated!

It's almost certain that an appraiser would correct this mistake and re-do the appraisal.

 

[Mountain Man]

That could change the whole valuation! Different sale comparables, different quality rating, etc. Personally, I'd first ask the lender to look into this and see if a correction (or new FREE appraisal by the appraiser) would give you enough $$$$ to drop PMI. If no action is offered by the bank or appraiser, I'd then get my own appraisal and start talking to my attorney to see if it's worth suing for the added cost of the loan. Hey, it's an error, we all make mistakes and that's why most carry errors and omissions insurance. I can tell you that if you came to me with a significant error I'd gladly fix it or do a new appraisal over the chance of being sued.

 

[George Hatch]

That's a serious error and would likely have a significant impact on the selection of comparable sales. Assuming there are plenty of sales to choose from we generally don't pick the same comps for an 1800sf house that we do for a 1300sf house.

Someone (probably you) paid good money to get a reasonable appraisal. It's hard to believe a lender would just blow this off if they saw the two diagrams side by side. Just the floorplan shows you're probably not going to get 2 bedrooms + living room + dining area + den + 10ft wide garage across the front of a 54ft wide structure.

If I were the appraiser and you sent me both diagrams I'd want to clear it up one way or the other on an ASAP basis. I wouldn't want you to get mad enough to submit a complaint to either my client or my state appraisal board. But if this appraiser is too busy or too dumb to look out for their own interests I guess they get what they get.

Everyone makes mistakes. Only a fool tries to blow off a serious mistake.

 

[LordofTexas]

Stencil,

If you had listed your email address in your profile, I'm sure numerous appraisers would have told you how to handle this.

I'm shocked the lender hasn't done something on your behalf if the much larger size is in fact the true size.

We are not responsible just to the Lenders and AMCs. We have our respective state agencies to answer to also for gross errors.

I'm also shocked no one has responded to you either.

 

[stripes]

Okay I'm going to try to be as brief as I can. We closed on a refi in June and the lender did an appraisal of course. The appraisal came in very low much to my shock, and even the lender's initial shock. We purchased our house at $329,000 and this appraisal came in at $260,000. The lender said they would "talk to the appraiser and get it adjusted", which of course the appraiser did not do because he stood by his appraisal. I wound up having to get PMI for the house which was very frustrating, but we were still saving significantly on payments because of these super low interest rates.

Well during the process of having our taxes adjusted (since we're currently paying taxes on a valuation of $354,000!) the attorney said the appraisal just didn't add up and I should double check it. In doing so I just discovered that the square footage reported on the appraisal is 1368 sq ft, which is WAY off. I checked our appraisal from when we purchased our house 3 years ago, and the square footage is listed at 1820. I measured the house and also checked with identical models, and 1820 is the correct number. It appears the appraiser made a mistake on the dimension of the house. Here's his calculation:

And here is the old appraisal:
Link to calculation from old appraisal

You can see the difference in the appraisals is over 450 square feet. The difference was that thew new appraiser labeled the length of the house as 56 feet when it is actually a little over 76 feet. I could kick myself for being so dumb and not noticing this during the refi. But now I have questions:

1) What is the proper procedure for having the appraisal corrected? I am sure I should not be paying PMI, but should I work with the lender? The appraiser? Is there any hope at all that an honest mistake can be honestly corrected?

2) How much would a mistake like this change the valuation of the house? This appraisal is almost $70,000 lower than the one we had done 3 years ago. The previous appraisal was $354,000. Even if the house was valued at $285,000 I wouldn't need mortgage insurance. What do you think the true valuation of the house should be?

Thanks for reading such a long post, any advice or suggestions would be greatly appreciated!

Not sure if you could or should have the appraisal completed in June corrected, but you should work with your lender to remove PMI. If you have a say in who appraises your home next, don't hire the last person. Your other questions are beyond what an appraiser on an internet forum could answer, but additional square footage usually increases the value of a home.

 

[GCJim]

In comparing the 2 sketches, it does appear that an error has been made. (I have no idea which sketch is correct. FYI---the garage area is NOT to be included in Gross Living Area [GLA]).

The difference in value will likely vary by some dollar amount times the difference in square footage between the two sketches. The dollar amount per square foot is derived from actual statistics from your immediate market area.
(FOR EXAMPLE, let's say the difference is really 600 square feet, and the market adjustment in your neighborhood turns out to be $50.00 per square foot. The value difference, based only on the area difference, is $50 X 600 = $30,000, after accounting for any economies of scale).
HOWEVER, if the measurements are really far off, it may suggest the use of entirely different comparable sales than were used in the erroneous appraisal, closer in size to the real size of your house.

Confirm with your tax assessor the true gross living area of your house. If the difference is as large as you think it is, contact your lender and explain the situation.

 

[hastalavista]

A significant error.

I'd contact the lender who did the refinance and tell them about the error.
I'd huff & puff, and get them to re-do my loan at the new valuation based on the actual gross living area of the home. I'd also demand they eat the additional costs.

Here is a key factor I'd look into: In most jurisdictions, there is a public record file that provides an indication of how big the homes are. In my area (California), this information is collected from the tax assessor and published. As a rule, most lenders review the public records profile and match it with the appraisal information. If there is a significant difference (like 400sf), the appraiser is asked to provide an explanation.
So, my advice:
A. Find out if there is a public records data source. Sometimes the source is included in the appraisal (by citation if not included in the addendum).
B. See what the indicated GLA (Gross Living Area) of the home/improvement is. If it is 1,800+/- sf, the lender and appraiser should have caught that.
C. Re-read the appraisal report and see if there is any comment or explanation regarding the difference.
D. Bring your findings to the attention of the lender, and make your demands for a redo. Tell them that they failed to provide a minimum standard of care in their review process.
E. See what they say.

I don't like to throw an appraiser "under the bus". Anyone can make a mistake in the initial measuring. Prudent appraisal practice includes the appraiser confirming his/her measurements against some public records benchmark (if it exists); if there is a trivial difference (say, 50sf on that size), then that could be a rounding error. A 400sf difference is non-trivial; the process then should have been to re-confirm the measurements. There are plenty of tools to do so from the desk; the best practice would be to go back out and re-measure the house.
Unfortunately, this mistake had a serious consequence. My first advice is to see if the lender will agree to fix the mistake since they are responsible for the appraisal quality as well as the selection of the appraiser. If that fails, I'd contact the CFPB or that lender's regulator. Also, I'd be remiss if I did not say there may be grounds to file a complaint against the appraiser. Filing a complaint is a serious undertaking, and I don't offer that advice lightly. If what you have presented is correct (and I have no reason not to think so), then it is an option you are entitled to take. For a fact, if this mistake is due to incompetence, the appraiser's regulator will want to take action (this will not benefit you directly; it will correct a professional shortcoming, which benefits us all indirectly).

Good luck (and let us know how it goes).