When two of my blog readers send me WSJ articles on the same day, you know something big is up.
Appraisals 101: An appraisal is a report that is supposed to be a 3rd party impartial review of a property (usually under contract) to make sure the price is in line with recent closed sales (not counting houses still “for sale”). This protects the bank from buyers buying overpriced houses, which are at higher risk for default.
I first wrote on this topic of inflated appraisals: Builder Tricks Part 3! Independent Appraisals & Fiduciary Duty. I showed why builders try to require “in house lenders” that happen to have appraisers in their back pocket that miraculously make the numbers come in. Ultimately consumers who suspect foul play should pay $300-$400 and get a real “independent” appraisal of their purchase.
First let’s understand the position that some appraisers are in.
- Transaction volume is down 20%. (I’m not talking prices, but quantity of deals)
- As prices fall, it is harder to make the numbers come in (especially with new construction).
- Appraisals are subjective. “If I push it another $10k, or $20k, I can probably still argue my defense.”
- If your appraisals stop “coming in” (hitting the contract price), even though you are supposed to be “3rd party” and unmanipulatable (MS Word says that isn’t a word, but I disagreely), you will stop being hired.
- Suddenly, you can’t buy lunch.
So eAppraisalIT got sued by NY Attorney General since “eAppraiseIT’s president, sent emails to his superiors at the parent company… [that they] would “roll over” and submit to Washington Mutual’s demands on appraisals.”
Why is this important to you if you are buying today?
Many contracts have an appraisal clause/contingency that allows you to renegotiate or back out of a contract if the property does not appraise, even for new constructions put under contract months or years ago.
By knowing that these shenanigans exist, you won’t simply say “oh well, it appraised, so it must be fine.” Now you will say “who appraised it, and who do they work for, ME or the lender wanting the deal to occur.”
Why is this important if you are NOT buying today?
If a system’s checks and balances are off kilter, and no longer checking or balancing, fraud affects everyone.
If just one neighbor falls prey to these practices and
- Can no longer afford monthly payments
- Can’t refinance since the house was overvalued
- Forecloses or has to liquidate their property for $50,000 under fair market,
- You effectively just lost $50,000 in equity.
This matters to everyone. This is just the beginning too. Most of the spotlight has been on lenders and their aggressive practices. Now they are going after the support services that are part of the conspiracy. The problem is it is harder to prove. Rarely do you get an email from the president showing a hand caught in a cookie jar.
I still see stuff everyday.
- True Story: One builder closed a property $70,000 under asking price. Upon closing, they properly listed the property as “CLOSED,” thus showing the close price. A day later they CHANGED it to “WITHDRAWN.” This is supposed to be an MRIS/MLS (up to) $3,000 violation. Net result, appraisers can’t see it (they search “closed” properties) and I know a buyer that followed their skewed appraisal and overpay by $50,000. I have reported this MLS data fudging 3 times over 2 months to MRIS with no action/reply so far.
- True Story: A client with their own lender said “For $200, we can make the appraisal come in [$20,000 higher] to refinance your property.” This stuff is happening everyday.
– Written by Frank Borges LLOSA- Broker FranklyRealty.com
p.s. Please note just like there are shady agents, there are shady appraisers, but that doesn’t mean that they are all shady.
p.s.s. Please email me typos and email or post your examples of questionable appraisal practices.