Real Estate experts at Simplythebestloans.com write on lenders rejecting appraisals:
Appraisals: It’s about the Property, Not your Loan!
One of the newest issues with many loans today is lenders reviewing and rejecting appraisals. The appraisal is a ”defensible” and carefully documented opinion of value. Most commonly derived using recent sales of comparable properties by a licensed, professional appraiser. Since the real estate market has been extremely heated in my area, property values have soared at a rapid rate. Lender’s are beginning to question these values and whether or not they’re realistic.
I believe it’s important for buyers to know that even if you do get a good appraisal and believe the value to be reasonable, lenders have the last word. As they review and underwrite your loan, they also review the appraisal. These days if there is even the slightest question as to value or future re-sale potential, many lenders will reject the appraised value and sometimes they reject the appraisal completely.
Although it’s not a frequent occurrence for an appraisal to be outright rejected by a lender, it does happen often enough for buyers to need to know it’s a possibility. It may not even be a question about the value of the property, the lender could reject an appraisal because it includes other information that makes them wary of underwriting the loan.
When an appraisal is rejected by a lender after a buyer has been approved for the loan, it is not a reflection of the buyer’s credit worthiness, it is merely a reflection of the lender’s discomfort with the property itself. Should you find yourself at the end of the loan process and discover that the lender has rejected the appraisal, your best bet is to shop for another property. With industry underwriting guidelines reflective of Fannie Mae and Freddie Mac’s standards, the likelihood that you’re going to find another conventional lender to do the loan is slim.
If the lender rejects the value given by the appraisal, you can still move forward with your loan but it may mean that you, as the buyer, have to pay the difference between the lower value and the sales price out-of-pocket to the seller, if the seller is unwilling to reduce the price.