I read a really interesting article today from www.AppraisalLawBlog.com
You can read the whole article at http://www.appraiserlawblog.com/2010/04/single-biggest-threat-to-appraisers.html - but here are the highlights:
The single biggest liability threat to both residential and commercial appraisers is the Federal Deposit Insurance Corporation. The FDIC held a conference last week in Chicago for law firms interested in representing the FDIC. What came out of that conference made me very anxious for appraisers, but it's much more than just a threat to individual appraisers. What the FDIC is doing hampers the ability of the appraisal profession to deliver accurate valuations going forward. The reason is: if you're an appraiser doing work for a lender (which may or may not be one of the 700+ troubled banks on the FDIC's watch list), your risk of being sued in hindsight by the FDIC and others for alleged overvaluation is eliminated by "coming in low" on the appraisal. The effect on appraised values -- whether conscious or unconscious -- is a normal reaction to knowing that someone like the FDIC may be shooting at you. That means more loans don't get made.
The FDIC has taken over more than 200 banks since the beginning of the mortgage crisis. When the FDIC takes over a failed bank, it usually sells off the banking assets to an existing lender but retains all of the potential legal claims against the failed lender's directors, officers, mortgage brokers, accountants, lawyers, appraisers, AMCs, etc. The FDIC is now in the business of suing these parties, blaming them for its failed banks' bad lending practices.
Appraisers should not be bowing to pressure in either direction! If I am reviewing an appraisal and it appears to be targeting a LOW value, excluding other relevant comps to select the lowest ones in the neighborhood, I am calling the appraiser on that. I believe “coming in low” is just as absurd as “coming in high”.
Appraisers should be reporting the market….period. There should be a reason why the value is the value. I am an appraiser in central Florida, and live in the city of Clermont. We have seen quite a drop in values over the last 3 years like many other ‘hot spots’ of the prior boom.
When I adjust various sales and listings in my residential appraisal reports, I end up with a range of adjusted sale prices and listing prices. Somewhere in that range is where I place the specific value for the property. Why does one pick the low side or the high side? Why do we not just use an average of the adjusted prices? It is a reconciliation of the data. It is our experience, sound reasoning and logical conclusions which places a specific value as of a specific date on a property. We should NOT be led around by the nose trying to please anyone, nor should we ‘coming in low’ from fear of being sued.
However, as the article points out, human nature is what it is. People react from various motives: fear, greed, the need to please and be liked, etc. And that is the BIAS which needs to be weeded out of our profession.
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