Everyone feeling the pain and an industry gone wacko!
February 4, 2007
Or, maybe it is always wacko. An article yesterday in the Washington Post has me shaking my head. A survey conducted reports that 90% of the appraisers surveyed indicated they were pressured to raise their appraised value. Here's the excerpt:
Appraisers Under Pressure To Inflate Values
By Kenneth R. HarneyWith home prices softening and sales volume sagging in many local markets, real estate appraisers say that pressure on them to inflate values has reached pandemic proportions.
Saturday, February 3, 2007; Page F01
A new survey of the national appraisal industry found that 90 percent of appraisers reported that mortgage brokers, real estate agents, lenders and even consumers have put pressure on them to raise property valuations to enable deals to go through. That percentage is up sharply from a parallel survey conducted in 2003, when 55 percent of appraisers reported attempts to influence their findings and 45 percent reported "never." Now the latter category is down to just 10 percent.
Read the full article.
Can appraisers be wrong? Probably. An appraisal is simply an estimate of market value. Appraisers live by an industry code of ethics and industry standards. Their work needs to stand up in court. The biggest offenders are mortgage brokers (the middle man) and real estate brokers. Both want the "deal" to close. Sellers are on this list too. Feeling the pain of sitting on the market a long time, they don't want their contract to go south because it didn't appraise and the buyer potentially walks away.
I have had less than desirable appraisals on a seller's listing under contract. We first ask to see the report. We have an opportunity to offer questions about the estimated value. We can even offer our own comps that the appraiser did not consider. But, in the end, a good appraiser will stand by his or her work and only modify an opinion on hard facts. Maybe asking questions and offering more data is interpretted as "pressure." Beyond that, here are the sellers and buyers options (notice "pressure the appraiser" is not in the list):
- Re-negotiate the selling price. I had one where the appraisal came in $20,000 low. The buyer and seller agreed to a new contract price $10,000 lower than the original offer. A win-win conclusion in this case. Of course, the buyer had to come up with the extra cash to purchase the home because the buyer was financing at 80% of the appraised value. Lender underwriters need a number to hang their hat on; the appraised value is that number.
- Seller may not be willing to negotiate risking the buyer walking away from the deal.
- The buyer simply walks away because of the low appraisal. Happens all the time.
- If the buyer and mortgage company agree, obtain a second opinion at the seller's expense. Then go back to the top of this list.
- Are there other options? I'd love to read your comments or real experiences.
Are there dishonest appraisers? Sure, just like dishonest real estate agents, brokers, lenders, clergy, police and (fill in the blank) ________________. When there is money involved, many will go over the ethical and legal line (or maybe just straddle it which is just as bad). Harvey concludes his article by offering this view by an executive of a large appraisal firm:
Bottom line in Hummel's view: Congress needs to enact legislation making pressuring appraisers to distort their valuations, or interfering with appraisals in any way, a federal offense, subject to criminal penalties. And state regulators need to step up enforcement against fraudulent appraisals, pressure tactics and appraisers who give in.I still can't get over the 90% figure from the survey. No wonder our industry has a bad reputation. I'm feeling a little dirty. I think I'll go wash my hands.
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Comments
I'm just not seeing it either, Marv. In a market where very little sells for asking price, I don't understand where this pressure is coming from. Fewer sellers are stretching the boundaries and fewer buyers are allowing those boundaries to be stretched.
Logic says if appraisers were to feel pressured, it would have happened with hyper-appreciation in the market, not in a market where a half-dozen comparable properties at the sales price or higher can be found for most properties.
Tony, thanks for weighing in...good insights. I agree 200% that the whole industry is too close to the vest. A closed business breeds abuse. I'm still wondering what the real "pressure" is on appraisers. It would be interesting to see how the survey questions were worded. It still boggles my mind that such a high percentage of responses were "we are being pressured..."
Back a couple of years ago when prices were increasing at a 25% annual rate, appraisers would invariable appraise properties below the sales price and it would fall on the buyers to come up with the difference. If they didn't want to buy the house, someone right behind them would. And the next buyer would waive the appraisal because they knew the prices of houses were appreciating but some appraisers just couldn't understand that.
In todays market most homes are selling for 10% to 15% less than they were at the peak. This reflects prices last seen in mid 2004. If no homes have been sold for the last 3 years at a price lower than today, what comps are appraisers using now?
Appraisals should be made to verify that there is no fraudulent activity occuring and the number agreed to by both parties is in the range of prices for the surrounding neighborhood. This can be done by having a value range provided by the appraiser instead of one number.
Also, there should be a database of all information regarding a property. This would include all appraisals for loans, all repairs and upgrades and maintenance. They do it for cars (carfax), they should do it for homes. But that would be transparency and the real estate industry is more concerned with hoarding information than sharing it.
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