Discovered a major error in my appraisal - now what?

[KHS445]

I will take a shot at this one. First and foremost no appraiser is going to give you any sort of indication of value without actually developing a work file, which is a basic requirement of USPAP and our being licensed.

I would remeasure all sides of your home just to make sure your numbers are correct. If they indicate a number significantly different than your latest appraisal I would then contact your lender as the lender is the appraiser's client. Based on what you discovered the lender should contact the appraiser explain the difference and ask the appraiser to review their work file and if necessary to revisit your home to either confirm their measurements or to realize a mistake was made.

At that point, if a mistake was made, your lender should give the appraiser an opportunity to prepare a new appraisal using the new (correct) measurements. Most likely if there is a change in square footage the appraiser will need to seek new comparables.

If everyone works together this issue can be resolved quite easily. If not you should ask the lender to order a new appraisal and if the value is sufficient ask that your PMI be removed. Hopefully this can all be resolved in a reasonable manner by reasonable people.

Good Luck.

 

[sputnam]

Most lenders have procedures in place for disputing an appraisal. You will need to talk to the lender to get specifics.

 

[Shelgard]

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!

I dont, know for sure but it sounds like the 1820 one includes the garage sf which is incorrect. Garages dont count towards Gross Living Area.

 

[Thomas Fiehler]

I would contact the lender and have them ask the appraiser to return and measure the house as there is a major discrepancy with other data. If they refuse get a different lender and I would try to get reimbursed for any expenses you occurred.

 

[Oceanic1]

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.

I'm not defending the other appraiser's work, but you do realize that 3 years ago, many markets were, and some still are, in the middle of a huge correction.

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?

First make real sure that your back wall is actually 76' as opposed to 56'. Then present this information to the lender, and they need to approach the appraiser with evidence of his/her mistake. If they stick by 56', have them explain why. (You can also pay out of pocket to get an independent appraisal done to prove this to the lender.)
You've paid for an appraisal, and if the lender took your money to get one done, then they at least need to give you what you paid for the first time.
IF the original appraiser made a mistake, give them hard undeniable evidence of it, and demand that the lender have it corrected.
It doesn't matter what the OPINION of value was, if the appraiser screwed up the measurements, then they didn't produce a credible appraisal, and that's where they are at fault. My guess is that 400 sf would make a difference, however I don't live in your area.

 

[CindyR]

You do not want to contact the appraiser. There is likely nothing the appraiser can do at this point. You should contact your lender and ask them to straighten it out. I would ask them to send a new appraiser and do a new appraisal and be sure they do not charge you for another appraisal. I would also try to make sure they do not charge you for more fees and such to modify the loan and drop the PMI if that is the result.

 

[Delta85]

If correct this would be a major error. Submit your assessors field card along with your own measurements to your lender and have them request the appraiser double check his findings and correct them if warranted. Or request the lender have a second appraisal done or a full review. Not sure when you bought your house but I would not be shocked to see that it declined however if the appraiser missed roughly 500 sq. ft. that would make a big difference.

Note: I'm appraising a home that was purchased in 2010 for $415,000 and my opinion of value will probably be less than $390,000 (report is till in process so I have not made conclusions yet). So a steep decline is not out of the question even with correct square footage.

 

[Scott R Marshall]

A mistake like that is substantial. While one may be off 1/10 of foot here or there, ultimately leading to slight variations in measured square footage, gross living area, unlike many other things within the report which may be a bit more subjective, is an absolute. Homes generally do not shrink on grow on their own accord and there is an actual square footage.

As the appraisers error in measurements is substantial (more than 30%), I would direct this situation to your lender. I have had instances where the owner has questioned my measurements and depending on the situation, have either remeasured for no fee, or agreed to charge no fee if it was found my measurements were in error.

The thing that irks me here is either the appraiser neglected to measure all the front or back walls and just closed their sketch, resulting in the mis-measurement or simply refused to remeasure themselves when they became aware that there was a huge issue with their own sketch as it would not close.

While it may be erroneous in your market to equate a 30%+ error in measurements to equate to 30%+ increase in your homes value, I would be incredibly hard pressed, at least in the markets I appraise in, to say that due to an error this substantial, the opinion of market value rendered within the original report would not be impacted.

I guess it all depends whether the appraiser hired decides to cling desperately to their sinking ship or is humble enough to admit when a mistake was made.

Good luck!

 

[Terrel L. Shields]

Inform the lender. Ask if they could reconsider. That may be too late to undo the PMI but perhaps you can get it removed. I would not be bashful about asking the appraiser to 'fix it' - late to the party or not. It is HIS error apparently.

If the appraiser does not respond with an admission to the error then send the report to the state appraisal board as a complaint. The appraiser ignored your concerns and in doing so, once apprised of a potential error, was negligent in not catching such a serious measurement error. If that issue is raised, I would have checked and rechecked. Appraiser cost you the PMI. You could have a lawyer file a complaint against his E & O insurance as well.

 

[stencil]

Thanks for all of the advice everyone, I am going to have to re-read all of these posts to formulate the right approach as there seem to be a few different opinions in there.

I don't want to sue anyone, nor do I want to damage someone's career over what is hopefully an honest error. I just want to have the PMI taken off of my loan. I actually called all parties involved on Monday (before finding this forum and getting some sound advice), but so far neither the lender nor the appraiser have called me back. This makes me... uneasy. I'll try contacting the lender again.