Buying or selling a home is always a stressful time. Finding the right house for you is only the first part of the process. Once you are under contract, there is little for you to do but to play a long game of “hurry up and wait” as you have little control on the events that precede your closing date. The lender is the one that calls the shots, and any delay can be heart-wrenching. Having your bank demand a second appraisal is one of those moments.
There are many reasons why a bank may require a second appraisal. It is not necessarily a deal-breaker, but it will affect your timeline. So, what should you do if your lender requests a second appraisal?
1. Ask your bank about their reasons to require a second appraisal.
The first thing you should do when learning that you need a second appraisal is to ask you loan broker why. They are the only ones that can point you in the right direction. In many cases, it has nothing to do with you or with the first appraisal being wrong, but it is an extra safety measure for the lender.
The bank should also send you a copy of the appraisal upon request so you can have a better idea of what went wrong.
2. Find comparables to present to the appraiser
If the appraisal was too low, you could try to find comparables that support your opinion of value. It’s always a good idea to ask for assistance from your real estate agent if needed. In some cases, you can also hire an appraiser yourself (at your charge). Although the bank is unlikely to use the appraisal produced, it will strongly support your case.
3. Change your loan
The type of loan you are going for will affect the likelihood of a second appraisal being requested. If you are using a conventional loan, second appraisals are rarely needed. However, for government-backed loans, for which the house needs to meet specific requirements before closing (like an FHA or 203K loan), a second appraisal is often necessary to verify that these conditions are met.
If you want to avoid a time-consuming second appraisal, prefer more straightforward conventional loans.
4. Reduce your debt
If the borrowers increase their debt-to-income ratio prior to closing, by requesting a line of credit to buy furniture, for example, it may affect how much the lender is willing to let them borrow, and the bank may request a second appraisal. A word of caution: if you want to avoid any delay, wait until after closing before buying big items on credit.
5. Do nothing
In most cases, there is nothing you can do or should do if the bank asks for a second appraisal.
The bank confronts the result obtained by the appraiser to a computerized valuation method called Automated Valuation Method (AVM). This method is far from accurate, especially if the subject property has unique features. However, if the results from the appraisal are very different from those obtained by the AVM, it will raise a red flag, and the bank may require a second appraisal.
Appraisals are only valid for a relatively short time. If you have been running into delays and closing is taking a long time (usually between three and six months), the bank may ask for another appraisal to make sure that the value has not changed.
Finally, the bank may have an issue with the appraisal: if the appraiser has been found incompetent or if a reviewer decided that the appraisal was too high or too low, it is likely that your lender will require a second appraisal.