Pressure on Appraisers to hit the number
Nine out of 10 real estate appraisers say they've been pressured to raise property valuations by mortgage brokers, realty agents, lenders and individual home sellers.
That represents a huge increase over just the past three years, according to October Research Corp., the principal sponsor of a nationally-representative survey of appraisers. Richfield, Ohio-based October Research, publisher of the trade journal Valuation Review, polled 1,200 appraisers from all 50 states plus the District of Columbia and Puerto Rico in 2003 and 2006.
Forty-five percent of those polled in 2003 said they had "never" been pressured to fudge the numbers on valuations, but just 10 percent of those participating in the latest survey said the same.
"Those are amazing numbers," said Alan Hummel, senior vice president and chief appraiser for Forsythe Appraisals of St. Paul, Minn. Forsythe was a co-sponsor of the 2006 October Research study.
Hummel said one key reason for the big jump has been the national real estate sales and price slump, and the heightened importance of every signed real estate contract to the parties involved. "I call it a perfect storm scenario," said Hummel. "You've got a situation where sales are down so everybody in the deal needs it to go through" at the price agreed to by the seller and buyer. When an appraiser comes up with a lower valuation than the contract price -- based on lower comparable sales prices in a depressed marketplace -- the commissions of realty agents and mortgage brokers may be jeopardized.
Some mortgage brokers and lenders, said Hummel, try to avoid such situations by "dialing for values." "They call up appraisers and say, we've got this sale at $335.000 at such and such an address. Can you get to that number?" The practice is also known as "pre-comping."
Appraisers who say they can hit the number get the assignments. Those who say they can't or fail to respond get nothing. Licensed appraisers must conform to a set of national rules known as "USPAP" (Uniform Standards of Professional Appraisal Practice), which prohibit interference with valuations. Hummel says the vast majority of appraisers are ethical and refuse to give into any form of pressure.
A minority of appraisers, however -- primarily inexperienced and poorly-trained newcomers drawn to the field during the housing boom heydays -- allow themselves to be pressured, and they modify their valuations to meet clients' demands, according to Hummel.
What happens when appraisers decline to play the game? The October Research survey found that 75 percent of appraisers reported "negative ramifications" when they declined requests for inflated valuations. Nearly 70 percent said they lost the client altogether, and 45 percent said they never received payment for the work they did.
Who applies pressure most frequently? The study found that mortgage brokers are by far the worst offenders -- 71 percent of appraisers identified them -- followed by real estate agents at 56 percent. In the 2003 survey, 47 percent of appraisers identified realty agents as pressure sources, and 60 percent identified mortgage brokers.
Hummel said realty agents are able to retaliate against appraisers they deem uncooperative by telling local lenders or mortgage brokers: "Look, I'm not sending any more (home purchaser) clients to you if you continue to use that appraiser."
That represents a huge increase over just the past three years, according to October Research Corp., the principal sponsor of a nationally-representative survey of appraisers. Richfield, Ohio-based October Research, publisher of the trade journal Valuation Review, polled 1,200 appraisers from all 50 states plus the District of Columbia and Puerto Rico in 2003 and 2006.
Forty-five percent of those polled in 2003 said they had "never" been pressured to fudge the numbers on valuations, but just 10 percent of those participating in the latest survey said the same.
"Those are amazing numbers," said Alan Hummel, senior vice president and chief appraiser for Forsythe Appraisals of St. Paul, Minn. Forsythe was a co-sponsor of the 2006 October Research study.
Hummel said one key reason for the big jump has been the national real estate sales and price slump, and the heightened importance of every signed real estate contract to the parties involved. "I call it a perfect storm scenario," said Hummel. "You've got a situation where sales are down so everybody in the deal needs it to go through" at the price agreed to by the seller and buyer. When an appraiser comes up with a lower valuation than the contract price -- based on lower comparable sales prices in a depressed marketplace -- the commissions of realty agents and mortgage brokers may be jeopardized.
Some mortgage brokers and lenders, said Hummel, try to avoid such situations by "dialing for values." "They call up appraisers and say, we've got this sale at $335.000 at such and such an address. Can you get to that number?" The practice is also known as "pre-comping."
Appraisers who say they can hit the number get the assignments. Those who say they can't or fail to respond get nothing. Licensed appraisers must conform to a set of national rules known as "USPAP" (Uniform Standards of Professional Appraisal Practice), which prohibit interference with valuations. Hummel says the vast majority of appraisers are ethical and refuse to give into any form of pressure.
A minority of appraisers, however -- primarily inexperienced and poorly-trained newcomers drawn to the field during the housing boom heydays -- allow themselves to be pressured, and they modify their valuations to meet clients' demands, according to Hummel.
What happens when appraisers decline to play the game? The October Research survey found that 75 percent of appraisers reported "negative ramifications" when they declined requests for inflated valuations. Nearly 70 percent said they lost the client altogether, and 45 percent said they never received payment for the work they did.
Who applies pressure most frequently? The study found that mortgage brokers are by far the worst offenders -- 71 percent of appraisers identified them -- followed by real estate agents at 56 percent. In the 2003 survey, 47 percent of appraisers identified realty agents as pressure sources, and 60 percent identified mortgage brokers.
Hummel said realty agents are able to retaliate against appraisers they deem uncooperative by telling local lenders or mortgage brokers: "Look, I'm not sending any more (home purchaser) clients to you if you continue to use that appraiser."
posted by Ken Calhoon at 8:36 AM
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