Tuesday, February 08, 2005

'Appraisal inflation' a major real estate problem

Glenn Roberts Jr. reports that appraisers across the nation say commission greed among their clients is feeding the corruption.

About 55 percent of the appraisers who participated in a national survey reported that they felt pressured to inflate home values in appraisals, according to October Research Corp., which provides information and analyses for the real estate settlement services industry. A group of 500 fee appraisers, who each have at least five years of experience in the field, participated in the survey, which was released last year.

Some appraisers willingly bend numbers on home valuations to satisfy their clients and get more work, a practice known as "appraisal inflation." In its most destructive form, appraisal inflation can assist predatory lending practices and can play a role in flipping schemes, in which properties are fraudulently assessed to win a high loan amount and then resold for even higher prices. Exaggerated appraisals can lead to inflated home prices, increasing the risk of loan default and foreclosure and placing homes out of reach for some prospective buyers.

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25 comments:

JASValuation said...
This comment has been removed by a blog administrator.
JASValuation said...

Thank you for the Glen Roberts "Appraisal Inflation" Article:

It has been my experience that lenders work in both directions, appraisal inflation and deflation.

As things begin to head sideways, or downward, lenders begin to push values down in order to protect their "interest" in a property.

This can easily create a self-fulfilling prophecy as more and more lenders push appraisers for "conservative" appraisals.

It would be great if lenders abided by USPAP and allowed us to do our jobs without pressure.

In my recent experience, as well as those of other commercial appraisers that I am in touch with, the deflation scenario is becoming quite evident in the lender market.

Regards,

Jim Stein
http://www.commercial-appraisal.net

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Anonymous said...

I have a feeling in the upcoming years "appraisal inflation" will come to light as the mortgage meltdown becomes a bigger problem.

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