Appraisers Pressured to Falsify Findings

It�s an ugly fact of life in a declining real estate market. Real estate appraisers are under pressure from all sides. Here�s a recent article I saved.

Daily Real Estate News | February 2, 2007

Appraisers Get Pressured to Falsify Findings

The pressure is on property appraisers to come up with the right number, say 90 percent of appraisers surveyed by October Research Corp., which publishes Valuation Review, an industry newsletter.

That percentage is much higher than it was in 2003, the last time the survey was conducted, when only 55 percent of appraisers reported attempts by others to influence their findings.

The current survey found that 68 percent of appraisers lost the client when they�

refused to fudge the numbers and 45 percent reported not being paid.

Seventy-one percent of appraisers blamed mortgage brokers for the pressure, while 56 percent said real estate practitioners pressured them.

Source: Washington Post Writers Group, Kenneth Harney (02/02/07)

It�s not that this doesn�t happen even in a normal market, but today�s tumbling values can send more otherwise good loan files to the shredder bin. In Sacramento, many sellers have given up hope of selling their home for a decent price until the market recovers. Instead, many decide to refinance. If they can�t sell, the logic seems to go, they decide to stay and fix the things that they had postponed fixing. The problem is, the same value issues that have made a sale difficult will likely prevent a refinance.

It is very common these days to hear clients or agents say, my appraiser can get what ever value we need to make this work. First of all, that�s short-sighted and stupid. Second, it probably won�t work. Increasingly, lenders utilize Automated Valuation Methods (AVMs) to check values and make the sure the appraiser didn�t ignore the sale next door for a higher priced one further away.

Recently, I had a self-employed client who got into a business pickle and put her house on the market, though she didn�t really want to sell. We spent quite a bit of time analyzing how to restructure her debt in order to keep the home. She loved my ideas but turned her nose up at the rate. Instead, she shopped until she found a lender and an appraiser who would deliver a value $125k over the price at which the home was listed for sale. For a few basis points in rate, she was willing to compromise her ethics. How they sneaked that past the lender I�ll never know. But that loop hole is closing.

To the FBI, falsifying appraised values constitutes fraud. Increasingly appraisers and lenders are fighting back with legislation and fraud detection programs that will eliminate this abuse. Ultimately, there will less opportunity to commit this type of fraud and more opportunity to experience the consequences and penalties for committing it.

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