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Appraiser under attack, do they work to hit a number by request?

By
Managing Real Estate Broker with Flexit Realty "Flexible Home Selling Solutions"

We had a major headline this week that put appraisers on the defensive.  Well some of them...because they felt a bit exposed.  Michigan hit another dubious milestone as the 5th worst state for appraiser fraud.

Let me see....if you have mortgage fraud do you think someone else in the food chain has to help make it work on paper?

One of the interviews went like this....we are under tremendous pressure to hit a number to make the loans work.  What?  I was stunned to hear that statement....anyone listening?

What the appraiser was saying is the lenders are pressuring him to hit the loan number so they can issue a loan.  Then a loan officer says....Realtors are putting pressure on loan officer to make loans so they can get a sale for their clients.  checklist

OK....where is the checks and balances here?  I don't call an appraiser and say can't your do better with the numbers?  Heck, I rarely know who the lender has chosen to do the appraisal unless they call me for help with comparisons.

Do I ask the lender if they have alternatives if the property doesn't appraise?  If my client wants the property and they ask me to see if I can find a solution...I talk with their lender.  I rarely get involved at all with the lending process or the approval process other that offering some recommendations for the buyer to pick from.

I do know that some Realtors are very aggressively involved with the loan process.  That is up to them...I am not going to venture into the RESPA territory.  I do not offer interest rates or loans.  I do not do appraisals either. 

So if someone else decides to bend the rules and I do know about it and I am certainly not a party to it...I have a clean conscience and so does my buyer.  I don't like that they did it.  I don't like that they implecated me and my buyer by default by just having us involved with the loan and closing.

Bending the rules to get more income isn't going to make it better for the buyer.  If the appraisal comes in lower than the purchase price offered we need to look at lowering the sell price!  That's the number...I didn't come up with it, my buyer didn't come up with it.  The alternative is if the seller won't adjust the price is...the buyer can put more down out of his pocket to make up for the difference for the appraisal price and the purchase price. 

Nothing illegal for a buyer to pay more than the appraisal.  Also nothing illegal about the seller lowering the sell price to meet the appraisal or to negotiate a split in the difference.

I should also mention that I know some very ethical appraisers that would rather have less business than bend the rules to hit a lenders number when they were asked.  That has hurt their lender business but has also gained them a very professional reputation within the financial community.

The industry has been plagued with these issues for years...someone just wrote about them.  It is kind of like finding out where the cold comes from...everybody gets them...and nobody likes it.

Has anyone ever gone out of their way to hit a number for you?  Change your purchase price or sell price to meet a number?

Comments (11)

Ann-Marie Clements
Candidate for an Ed.D. in Educational Leadership - Saint John, NB
Ed.D. candidate, Innovative Proactive Principa

I've always thought appraisers worked with the banks, so the bank's customers (the consumers) could get the loans to the houses they desired.  I've never seen an appraiser not give the price of the house that was being sold any lower than maybe 1% or 2%.

I always thought the banks and appraisers each held the others' hand...  That's how they both kept their jobs.

Aug 23, 2008 01:05 PM
Sherry Peckhoon Sim
Sims & Company - Cayucos, CA
Broker/Owner, Covering the Beautiful Central Coast

Good post.  There's a reason for rules, and certainly we don't need any bending of rules.  Our current state of housing woes was caused, at least, in part by some 'bending of rules'. 

I was in a transaction not too long ago, whereby the appraised value came in lower than the agreed purchase price.  I represented the sellers.  Sellers were okay with the appraised value, which happened to support the marketing/list price recommended by me in the CMA given to sellers a month earlier.  Selling agent representing buyers was very concerned and asked me to provide or furnish figures to appraiser to help "raise" or get a value closer to agreed purchase price by advising me that buyers 'needed support in that area'.  I do not believe that selling agent is intentional of inflating the values.  However, I do not want to have any part in 'negotiating with the appraiser', and did not contact the appraiser.  Essentially, I left it to the selling agent to let the buyers decide if they want the house, and if they would be willing to absorb part of the difference between agreed purchase price and appraised value.  It so happened that there was also a lack of recent comps. in this transaction.  The sellers and buyers mutually agreed to split the difference and absorb 50% each respectively.

Aug 23, 2008 01:06 PM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

Hi Ann-Marie, the deal isn't based on mutual co-operation of the appraiser and the lender.  In fact it is set up so they can not influence each other.  We both know how that works.  Thanks for the comments Ann-Marie.

Aug 23, 2008 01:54 PM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

Hi Sherry, you kind of laid out exactly what I was saying when the numbers are lower than the purchase price.  There are ways to work things out.  Thanks for the comments Sherry.

Aug 23, 2008 01:55 PM
Ray Saenz
Exit Realty Laredo - Laredo, TX
Homes for Sale in Laredo, TX - Texas, Realtor

Gary,
Hello, here in colorado they are very careful to do appraisals now, several years ago, they inflated the appraisals, now ? many of them , I would think 95% do the right things, because they know that if they do something wrong, they can be "fined" big time and they loose their license and I do not know if jail too, so they do not want to take the risk for other appraisers that have had problems about this "fraud".
Ray Saenz

Aug 24, 2008 05:30 PM
Anonymous
ohio

See some actual "pre comps" here...

http://www.inman.com/blog/2007/06/5/mslp-mortgage-brokers-suggested-list-price

Aug 25, 2008 04:27 AM
#6
Michelle Gordon
JH Realty Partners - Ada, MI
Finding Your Place

I guess I have never worried too much, as I run comps before we offer a price, to assure we are paying value (or sometimes less).  I have never had a client want to pay more then what the comps show. What gets me is when I run comps and I know the home can comp out way more then the purchase price and the appraisal comes in at purchase price. 

Aug 26, 2008 02:08 PM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

Hi Ray, it has begun to sink in....but the honest ones have been there all along.  Thanks for the comments Ray.

Aug 27, 2008 11:06 AM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

Hi Ohio, the Iman report has always had a finger on the industry from all angles.  Thanks for the link.

Aug 27, 2008 11:08 AM
Gary White~Grand Rapids Home Selling Pro Call: 616-821-9375
Flexit Realty "Flexible Home Selling Solutions" - Grand Rapids, MI
Real Estate Services You can Trust!

Hi Michelle, it makes you wonder when that happens.  It used to happen much more than it does now.  I was told once that there are different types of appraisals.  I reminded the appraiser that when it comes to a value appraisal we are all supposed to be able to figure out where the numbers come from.  Haven't ever been told that by the good ones.  Thanks for the comments Michelle.

Aug 27, 2008 11:11 AM
Richard Glesser
North Country Appraisal Services - Gaylord, MI

Gary - Did an appraisal on a lake property in eastern Otsego County a year ago.  Selling price was $450,000, appraised value was $400,000.  Realtor argued adamantly and provided other (not very comparable) comparables.  I held my ground but found later in the MLS that it had closed so either another appraiser was hired to hit the number or the buyer ponied up an extra $50,000.

Aug 27, 2008 12:32 PM