When you are trying to sell or buy a home, you rely on accurate and honest house valuations to ease the process. Your lender will require an appraisal in order to determine the loan value and equity amount, and any potential buyer will want to know the fair market value of your house when negotiating a sales contract. You will also need an accurate valuation of your home if it is damaged or destroyed due to an accident because you will need to know the value of the property when dealing with your homeowner’s insurance company.
As such, it is crucial to have an up-to-date and reliable valuation of your house. You may run into issues with your house value under two circumstances:
- The property appraiser may over-inflate or under-inflate the value during a sale
- The insurance company may appraise your house lower than expected in a damaged property situation
If you disagree with the house valuation, you do have methods to dispute the house value, as outlined below.
Before you either buy a new home or sell your home, a property appraiser will inspect the home, examine the neighborhood, and survey comparable properties nearby in order to determine the fair market value of the home. This fair market value is then used to negotiate the sale price between the buyer and seller, determine homeowner insurance amounts, calculate mortgage loan amounts, and help the buyer determine if the home is a sound investment.
Unfortunately, house values are often under- and over-inflated as part of pervasive mortgage scams. At the behest of the real estate agent working for the seller, the property appraiser may distort the valuation by relying on inaccurate data. For instance, the appraiser will compare the home to dissimilar properties or will exaggerate the condition of the home or its features in order to bump up the estimated fair market value.
If you suspect that a home’s price is overinflated, you can hire your own property appraiser to inspect the property. In addition, your lender has access to a special Fannie Mae database that will review the appraisal for accuracy and any red flags.
However, if you purchase a home and later realize that it was not accurately appraised, you will need a real estate attorney to assist you with seeking a breach of contract or fraud lawsuit.
If your home is damaged or destroyed by an event covered by your homeowner’s insurance, such as a fire or a flood, you will be able to file an insurance claim. Ideally, your homeowner’s insurance company will provide you with funds to cover the cost of fixing your property or will reimburse you for the fair market value of your home if it is destroyed. In order to determine the fair market value of your home, the insurance company will send an appraiser to the property to inspect it and estimate the value of the property. This is not an exact science, especially for properties that have been completely destroyed by natural disasters. Often, homeowners are startled and displeased by the valuation amounts.
Keep in mind that you are not locked into this valuation amount. The fair market value assessment can be disputed. Your homeowner’s insurance policy contract probably contains an appraisal clause, which allows you to dispute the evaluation method used by the insurance company. If you dispute the valuation, you must then hire an independent appraiser to inspect the property. You will need to provide proof of their credentials to show they are properly licensed and experienced enough to conduct valuations. The insurance company will then hire an independent appraiser as well. An independent third party will be contracted to determine the true value based on the estimations of the two independent appraisers.
Disputing an appraisal value is a complex and difficult process that requires investigation, hiring independent inspectors, and negotiating with the other party. A real estate lawyer can review contracts, help you understand applicable clauses, and advise you on your best course of action.