Property appraisers are supposed to give fair and accurate appraisals of a home’s worth. To do that, they examine a home and its assets. They then compare that to other homes in the neighborhood and what those homes are worth. It’s similar to the process most real estate agents use to help the seller arrive at an asking price for a home.
However, the buyer, seller, and lender all want the appraisal to match or exceed the agreed upon selling price. This is where potential problems arise.
A 2007 study by October Research reported that nearly 90% of appraisers in the survey reported pressure to inflate values from lenders, real estate agents, mortgage brokers, borrowers and others. In fact, three-quarters of the appraisers stated they felt that if they didn’t cooperate, they expected negative ramifications from fewer referrals to total loss of business.
Taken on a home-by-home basis, a little fudging on the part of an appraiser to make the buyer, seller, lender, and agent for a home all happy, may not sound too terrible. However, according to a study cited in an article by Curtis Seltzer, in 2006 these over-appraised homes added up to approximately $135 billion in non-existent, additional value.
With the housing market struggling, these problems could very well increase. While a false appraisal makes everyone feel good about a home transaction, in the long run it can lead to more foreclosures and lower property values.
There are state and federal laws that appraisers must follow and ethical appraisers do just that. However, the pressure to over-appraise is strong, and unethical appraisers are the ones who benefit by giving in to that pressure.
The Fair Market Value for a property should be just that; pressuring appraisers to deliver anything else is bad business for everyone.
