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How Appraisers are Pressured
While an appraiser’s fee is not dependent on the value of a property,
the clients who pressure an appraiser have a clear incentive to solicit
a property to be appraised at the highest possible value.
Brokers, lenders,
real estate agents and developers are paid commission based upon the
value of the loans they obtain. In an honest system, there would
be no motive for an appraiser to ever give a property an inflated
value. But increasingly, coercive tactics are being used to
pressure appraisers to supply the desired numbers or lose business.
There are a myriad
of ways in which appraisers are pressured by their clients to change
the value of a property. The most common tact is refusing to
continue to work with an appraiser if he or she does not supply the
values needed by the lender/broker to make deals work. Some
clients also send appraisal requests with the statement: “If the value
is not there, stop and notify us,” a situation that, if the
assignment is accepted, places an appraiser in violation of USPAP
specifications of not making pre-determined value conclusions.
Appraisers have
also complained to Congress about lenders and brokers “shopping comps”,
a practice where loan originators send out e-mails stating the address
of a home to be financed. A June 19th article in the Denver Post
states that “only appraisers who are certain, in advance, that they can
find ‘comparable sales’ to justify the contract price, even if
inflated, are eligible for the assignment.”
Appraisers are
often asked to ignore items that would detract from the value of the
property. Bad access, structural cracks, water damage, unfinished
carpentry, and construction that is not up to code are among items they
are often asked to overlook.
In addition, to
ensure that a report hits the value, appraisers are told to ignore
falsification of data in the form of not reporting seller concessions
that wrongly inflate the value of property—a significant obstacle in
determining the true market value of a property.
On the ugly side of
‘predatory appraising’, appraisers are asked to utilize false sales
(placing false sales into the MLS system at substantially above market
values to support a false appraisal). These sales typically are
up to 50% above the market value for the property but presumably sell
within one day of the listing. And at times appraisers are even
threatened with physical violence.
In their recent
article ‘Home Insecurity’, Demos, a leading independent public policy
group, puts the cards on the table when discussing appraiser
pressure. The article states that “serious conflicts of interest
pervade the mortgage industry, stemming largely from the refinancing
craze. Lenders, brokers and real estate agents have an increased
incentive to inflate the value of residential properties” and that
“appraisers who have not complied with strong-arm tactics report not
being paid for work and being blacklisted.
An appraisal must
be impartial and independent from outside influence, and an appraiser’s
fee must not be contingent on hitting a required value. But
many brokers/lenders refuse to pay an appraiser if their needed value
is not met, causing valuable time and labor to be spent
in collecting
non-payments.
Many good
appraisers who refuse to produce reports that reflect untrue values are
being forced out of the industry, leaving fewer ethical and competent
appraisers for an industry already under scrutiny to depend upon.
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