No more inflated appraisals?
I’ve written before about how much of a scam residential real estate appraisals are. A new legal settlement, due to take effect Jan. 1 of next year, may change this.
A real estate appraiser is supposed to determine the true value of a piece of property. To do this, the appraiser is supposed to take several factors in account: the property’s size, number of bedrooms, location, surrounding neighborhood, condition. The appraiser is also supposed to study similar property sales to see what other nearby homes have sold for.
Problem is, appraisers often tailor their decisions on what a home is worth to match whatever figure mortgage lenders and real estate agents want them to hit. If a home needs to be valued at $400,000 for a deal to close, you can bet that appraisal is going to come in at or above that magic number, whether it deserves to or not.
I don’t want to condemn the entire appraisal industry. I’ve met several real estate appraisers who are honest and hard-working. They’ve felt the same pressure from real estate agents and mortgage loan officers to tweak their appraisals. They’ve resisted and come back with what they feel is a home’s true worth. Unfortunately, there are a lot of appraisers who don’t have such sterling ethics.
The new settlement sounds like common sense: Mortgage lenders won’t be able to fund new mortgages without guaranteeing that that property appraisals that make them possible are free of influence or pressure. A hotline will be set up for both appraisers and consumers to report abuses. And lenders who have their own in-house appraisal staffs won’t be able to rely on those services for property valuations if they later intend to sell mortgage loans into the secondary mortgage market. That last point is a big deal. Mortgage lenders make a lot of their money by selling the loans they originated.
This may not seem like a big deal. But overinflated appraisals are a big reason why housing prices across the country rose so quickly and so high during the recent residential real estate boom. They’re also a big reason why that boom has since went bust, and we’re seeing so many homeowners dazed as the value of their homes drops.
So, let’s look forward to Jan. 1. It’s about time we had at least the attempt to regulate the appraisal industry.
Tags: appraisal, scamRelated Stories
POSTED IN: Breaking News, Buying a Property, Educational Tools, Insights and Commentaries, Mortgage, Real Estate Scams, Real Estate Terms, Rights and Laws, Selling a Property
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