Have you ever had a case with dueling appraisals that span tens or hundreds of thousands of dollars?
Worse yet, have you had a case where your client is awarded the house, you’ve settled on the value, and, when your client applied for a refinance, the mortgage appraisal came in so low that it was impossible for them to fulfill their buy-out obligation?
In a volatile market, these appraisal gaps are more common and more problematic. When the figure from the anticipated equity from the house is used to determine the division of other assets and equalizations, it can unravel everything.
While there is nothing that can prevent discrepancies in appraisals, there are a few things you can do to mitigate the problem:
- Minimize the Time Gap: Obtain the appraisal as close to the time of the refinance as possible. The biggest varying factor in a volatile market is time. The more time that goes by, the wider the gap can be.
- Factor in Uniqueness: The more unique the property, the greater the gap as well. Comparing custom luxury properties, rural acreage, severely deteriorated homes, or mid-construction properties requires a lot more subjectivity by the appraiser because there isn’t cut-and-dry comparable data available. Hence, you get a wider variance of value.
- Avoid Zillow: Do not use Zillow or any automated valuation model (“AVM”) to establish a settlement figure on a real property asset. Not only is the formula they use for a particular property a mystery, but it is void of critical data that impacts values – including the condition of the property. An AVM has no way to verify what is inside the four walls of a house – it could be akin to the Taj Mahal, it could be uninhabitable, or it could be anything in between.
Zillow’s Zestimates and other AVMs simply have no place in a litigated matter.
- Consider the Emotional Value: The last variable is the “emotional value” that is placed on the house. This holds true when the property is placed on the market and we see buyers getting into bidding wars, becoming so emotionally attached to the property that they waive appraisal contingencies and throw all kinds of money at it to win the war. It can also hold true in a buy-out when one spouse is so emotionally attached to the house or is vehemently adamant that the other side loses the house war. It’s important to be your client’s voice of reason and, if they still chose to overpay for an asset, at least you tried.
Should you have any questions about this or any other real estate-related issue in your case, please do not hesitate to contact me.
Have a great week!
Laurel Starks, The Ilumni Institute founder and CEO