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How to Handle a Low Appraisal: An Interview with Victor Milliron of Milliron Appraisal Services, LLC

By Victor Milliron

Tell us a little bit about your company and its foundation.

I began my career in real estate in 1994 in the small town of Madison, Florida. A year later my interest shifted more towards the valuation of property instead of the sale of property (realtor), thus beginning my career as a real estate appraiser. By 1999, I received my residential certification while working in Daytona Beach, Florida. Moving back to Tallahassee, Florida, I obtained my general (commercial) certification in 2002 and opened my appraisal company Milliron Appraisal Services, LLC.

What are some of the services your company provides?

The services that I provide include the valuation of all types of property, which includes: residential, commercial, land, and industrial type uses. I have appraised many types of property which include: single-family homes, 2-to 4-family units, apartment complexes, subdivisions, timberland, light industrial, office, medical facilities, neighborhood shopping centers, and poultry farms; just to name a few.

Can you quickly walk our viewers through the appraisal process?

Typically, most appraisals come from lenders that need to have a property appraised because a property owner is either refinancing, buying, or obtaining a line of credit. The lender will order an appraisal and assign it to a real estate appraiser. The appraiser will then inspect the property and note its location, quality of construction and design, overall condition of the improvements, and if any repairs are required to be made to the building(s). Additionally, the appraiser will research and analyze neighborhood characteristics, comparable land sales and improved sales, construction costs, and income data (if necessary); to ultimately arrive at a final value conclusion.

What is a "low appraisal" and how does it differ per house/neighborhood etc.?

There's not a definition for a "low appraisal" so, I can only assume that the term "low appraisal" is a way of stating that an appraiser might appraise a property at a value that was lower than expected by the end user.

While there are many types of value (estate value, insurance value, liquidation value, market value, etc.) to consider when appraising a given property type, the most common is market value.

Generally, when a person wants market value, the appraiser is providing his/her opinion based on market evidence found in the neighborhood based on similar sales and costs for that area. He or She will use a combination of approaches to arrive at a final opinion of value. These approaches are (1) the Sales Comparison or Market Approach, (2) the Cost Approach, and (3) the Income Approach. All three or just one approach may be utilized depending on the property type, its use, client's request, and the purpose of the assignment. The appraiser considers each of the approaches utilized and ultimately arrives at a final opinion of value or a range of value; after considering all information that was analyzed.

Typically, a "low appraisal" (or value conclusion), may be considered when establishing a liquidation value or a price to sell a property very quickly. In this case, the client may order an appraisal that will consider a marketing term not to exceed a specified number of days (i.e. 30 days, 60 days, or 90 days of marketing). This is typical when the property is bank or lender owned.

A low appraised value may occur if the property is in an estate or in a neighborhood dominated by bank-owned property.

Why would someone receive a lower appraised value than assumed?

The reason someone may receive a value that is lower than expected may be due to neighborhood characteristics, external factors, design flaws, overall condition of improvements, and supply and demand (if a property is in a low demand area).

For example, a coastal area may be experiencing an abnormal flux of tropical storms or hurricanes over the years, with home owners trying to sell their property. This significantly increases the supply of homes on the market, thereby creating a buyer's market. As the demand decreases so does the value, and the buyer ultimately is rewarded by buying a property lower than what the seller paid for the property.

A second example would be: A homeowner may not be able to afford to pay for the home and its repairs and eventually, the lender forecloses on the property. An market dominated by bank-owned property can have a significant decrease in value as well, thereby creating a deflated market. The banks usually don't want to hang onto the property, so they sell it at a significant discount.

Keep in mind that appraiser's that appraise a property for financing (a loan that is federally funded by a bank) are ultimately working for the lender, not the home owner or home buyer. They are valuing a property to help the lender decide on what type of financing, or if they even want to provide financing on that investment. Also note, that contract price does not dictate market value. So many people tend to get this mixed up (real estate agents, property owners, and investors). Just because John Doe won the lottery and wants to pay $150,000 more for a property (contract price) than the typical buyer would pay at $80,000 in the same subdivision, doesn't mean that the price paid is market value.

What advice do you have for someone who needs to improve their appraised value?

To improve the value of the home, the home owner should properly maintain all aspects of its construction. This includes replacing outdated appliances, plumbing fixtures, roof cover, flooring, etc. The home is generally your biggest asset, so why not keep it up-to-date and presentable to a potential buyer. Most buyers want to move into a home. They don't want to buy, repair, then move into a home a month or two later.

Is it beneficial to enlist another appraiser to see if they list your home's value higher?

The benefit of having another appraiser value a property is to provide additional support of the property's value. The cost of having another appraisal can range from $300 to $1,000 depending on the location, value of the home, and the report format that is being utilized. If the second appraiser comes in $10,000 higher or lower, regardless, the additional cost was well spent. Because it will give added confirmation to the buyer or seller of the true market value of the property (i.e. between $110,000 and $100,000; or between $90,000 and $100,000). Another benefit of a low appraisal would be that the buyer obtains the property at a lower price after renegotiating with the seller.

So, I would highly recommend that if someone wants to sell a home, especially in today's fluctuating market, to have two appraisals completed. This will let them know (and the real estate agent if one is considered) the true market value of the home. Keep in mind that the report does not have to be to lender specifications. The seller can order something less than a full blown report. And note that market value is a value considered after all negotiations between the buyer and seller have taken place, with both parties typically motivated, well informed, and each acting in what he/she considers to be their best interest.

What are some consequences of receiving a low appraisal?

Upon receiving a "low appraisal" can have it benefits and consequences. Some of these may be but not limited to the following:

The buyer renegotiates with the seller to lower the contract price.
The seller does not sell his home because it was too high & the buyer backs out of a contract to purchase a property.
The lender does not loan money on the property because it may be too risky.
The attorney can provide for better negotiations for his/her client in a divorce situation.
The homeowner may get better tax incentives for his/her estate.
The property taxes of the property are lowered.

So you see, there are many types of benefits and/or consequences to a low appraisal. It all depends on the scope of work that is required of the appraiser, the type of value being considered (i.e market value, liquidation value, estate value, insurance value, etc) and the intended use of the appraisal.

What is the best way for people to reach you or your company?

I can best be reached by phone or by email.
Milliron Appraisal Services, LLC
Bus: 850-656-9223 / Fax: 866-533-2838
Email: victor@millironappraisals.com

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About The Author

Victor Milliron, a State-Certified General Real Estate Appraiser, #RZ2587, is the...

Phone: 850-656-9223

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