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Appraisals - what were they thinking ?

It has happened frequently over the last couple of weeks so I figured it was a good time to rant a little bit about some of the appraisals that came in over the last couple of years, not on purchase loans, BUT ON REFIS !!!

Yesterday I had a listing appointment for a small 2-bedroom property that even in the height of the market the maximum value would have been about $150K to 160K. Somehow the seller, when he refinanced, got an appraisal of $220k so now the loan balance is $188k. What in the world ? Needless to say, this will now be a short sale candidate. How in the world did that appraisal come in ? Was it a drive by ?

I have many other examples where the "appraised" value was just completely absurd. What were they thinking ?

Countless times I have met sellers who are either underwater or very close to it as a result of refinancing. I understand that it was the consumers choice to do this move, but the fact it is without the INFLATED APPRAISALS, those refinances never should have happened, or at least not to their excess. Every one is pointing their fingers at the mortgage companies. But the mortgage companies rely on the appraisal reports....

Further, these "appraisals" give sellers an incorrect sense of value in terms of what the house can sell for. They will say, "Well Chris, my house appraised at _________ ".

How bad would it be for a regulatory agency to go back and review some of the appraisals that were done that were just out and out crazy ? Many were just plain fraudulent and criminal.

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Posted by Christopher and Stephanie Somers - Realtors - Philadelphia Real Estate on 07/24/2008 05:29 AM

Comments (16)

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Originally posted at: The Philadelphia Real Estate Blog: Appraisals - what were they thinking ?

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16 Comments on Appraisals - what were they thinking ?

JUL

2008

A good appraiser will use your comps (if they had not considered them) in the appraisal. Best if they get to see inside the subject home and the comps too...

Your Friend in Charlottesville!

Inflated appraisals for refinancing is partly responsible for the mess we are in.

I agree with the above and it would appear the lenders had an undue influence on the appraisers involved.

It's a shame that you point out that even in the best of times the home would've capped out at $150 to $160k. The bank should've double checked the homework. Your clients probably thought they had enough of an equity cushion because of the faulty appraisal.

This is why so many of the lenders are now going out of business. They have tools that can detect higher values. They just didnt use them.

They're still not using them! Loss mitigation departments taking forever to order BPO's?

Thanks for a number of the comments - seems like a relevant topic and my concern is shared.

When I look at some of the appraisal reports, as far as comps that were used and adjustments made, it is absurd. I know there are a lot of good quality professionals out there (have talked to many on the phone) but I think there were many that bent to the will of the banks in the better times since they were getting so much business. I have also talked to a few on the phone (verifying comps at least) that just did not have a clue either... I think it is this area of the market that could use a big step up in education and regulation.

in Florida values shot up 100% in 3 years (Miami Dade) you could buy have and appraisal and gain 20-40k in two months now look at the mess we have?

Right now the regulators are to busy trying to get this mess straightened out so there probably are not enough resources to investigate the appaisals. Maybe in the future.

Chris and Steph,

Oh I have run into that so much in the last month. Homes that are in short sale or their owners are desperate to sell. They sit there and after living in a home for years and years and then get equity lines and max out or as in your case actually go over their homes value. Then they are bringing money to the table just to close. Of course my other question is Why did the banks allow it?

I have another one where the owner owes $370K for a shell ! I have no idea how that appraisal came in !!! Have it in the market for $200K. I am a little nervous about even taking the time on this one. Have an offer for $120K. I am thinking that there had to be some sort of fraud involved on the purchase side.... it just does not make any sense ! It seems as if the shell got an apprasial amount for a brand new rehab or a new construction value. Unreal...

It is mind bending, how they came up with some of these numbers...let alone why they encouraged people to refi in the first place!

Laura - I still receive all kinds of notices in the mail about refinancing options. I would imagine that the average person would have eventually taken advantage of them. With everything I hear on the news, I dont hear anything about this topic.

JUL

2008

Have been hearing more and more stories about the highly inflated appraisals more and more every day as I have been talking about it more and people are contacting me... is a bit scary.

Chris and Steph - I could bet you this deal went down like this:

It starts with the loan officer who puts pressure on the client , who then sells the deal and puts pressure on the appraiser - submits the loan to the investor and then threatens to never use them again if they tear up the appraisal, slams the title company to close and fund asap while the whole time whacks the client for max YSP and upfront points.....

that is an amazing stretcheroo........

Lewis, LOL, agreed. I know many deals went down like that. I feel good that I was not involved in any whacky deal. I think most of the super whacky appraisals came in on the refis and not the direct purchases.

www.thesomersteam.com

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