Appraisers: Fraud is Not Okay

Some people might say a public forum isn’t the place to air this dirty laundry, but this is not really a public forum. Of my thousands of readers, very few of them are not in real estate appraisal. Right now, I’m talking to the bad apples. 

Maybe you’re in a situation where you want a lot of volume and want to be the go-to person for the local mortgage company or local bank, and you want to keep them happy. There’s an implication that the higher you come in, the more volume they’ll send you.

In the long run, you’re hurting yourself, you’re hurting the business, you’re hurting your colleagues, and you’re hurting the valuation profession. It’s going to come back on you.

Here is a real-life scenario: I just got done with an unofficial review of a report. I was hired to do an appraisal for a local bank. I went out and did the inspection, chose the comparables accordingly, and turned in the appraisal. Let us say I came in at $150,000. Within an hour of turning this in, my office got a call from the lender asking what was going on. There had been an appraisal about a year ago for $250,000. That is a 40% difference.

My assistant said if we can get permission from the client then we can talk value and if you want to share information about the prior report, we can take a look at it and see where the differences are. This was not an official review.

I opened the report, and at first it looked like a really good report. I thought maybe I had screwed up. I started from scratch again and went into the MLS system, looked at comparables, and tried to figure out the discrepancy. I wondered if perhaps the market had shifted 40%, since this report was almost a year old. No, that was not it. Was it because the comps were different between then and now? Maybe. 

I took a deep dive using photos, Google Maps, calling real estate agents for information, and keeping an eye on the MLS sheets for verbiage and information about relevant updates. This deep dive is what separates the professionals from the checkbox monkeys. Are you the type of appraiser who wants to figure things out?

Looking at the comparables on the higher end, I saw a lot of them were either next to a university (which adds a lot of value), and/or had been completely remodeled. Seeing that, I felt a lot better about the comparables we had chosen for our report. I again looked at the comparables the previous appraiser had used. Most of them were the aforementioned high-value scenarios.

This appraiser used sales he should not have used and ignored sales he should have used. I won’t speculate as to why. You wouldn’t see the problems with the appraisal until you really dug into the market, but there are some huge problems.

Nine months ago, when this appraisal was done, the people who lived in this property (the same people who live there now), thought their house was worth $250,000. They made financial decisions based on that $250,000. It’s possible they’ve now spent money they didn’t have, because (possibly) an appraiser was trying to get in good with a lender.

Being liberal with values hurts the homeowner. This couple is wanting to refinance again, thinking it will at least come in as much as it was before, and the value is just not there. It’s not because the market has changed 40%, it’s because the appraiser from almost a year ago messed up. Buybacks happen, and appraisers can get themselves in trouble if they can’t support what they did years prior to the buyback.

There are a couple local banks I can think of off the top of my head who will not use Dustin Harris for real estate appraisal. Both of them have told me it’s because my numbers are too conservative. Is that even possible? Why can’t it just be accurate instead of “conservative” or “liberal?” Just be precise in the way you do your job. 

For more information on this subject, please download and listen to The Appraiser Coach Podcast Episode:

8 Comments on “Appraisers: Fraud is Not Okay”

  1. Pingback: Appraisers: Fraud is Not Okay - Appraisal Buzz

  2. I think that we as appraisers need to be very careful about using the word “Fraud”. Fraud implies that the person knowingly did something that was wrong or misleading. Sometimes the appraiser is just incompetent and does not know that they are not doing the correct thing, this is not fraud. Example: A local appraiser with over 30 years’ experience, all in this area, still completes appraisals like we did in 1980’s, making adjustments of $ 25 -35 dollars to the comps for sq. ft. adjustments. This appraiser includes lots of commentary to support these adjustments however the commentary makes no sense. In my way of thinking it is just “ baffle them with Bullshit”. I have known this appraiser for several years he does not think that he is doing anything wrong and is unwilling to listen to others or change. This is not Fraud.

  3. @ John Pratt: Does the local appraiser really have 30 years of experience? Or just 1 year’s experience repeated 30 times?

  4. Years ago, before agents had to be careful about it, I was talking to a broker who said I get asked all the time about an appraiser referral. First question I ask is, do you want a high appraisal, a low appraisal, or do you want to know what it’s worth. I prefer to be in the latter group.

  5. Yes, I did some recent reviews and saw the same thing, incorrect comparables, high values. Here is a true story, I was hired by Fannie Mae to complete a retrospective report, of an appraisal completed just before the last crash. About 3+- years later. Sad story, the guy lost his home
    through an inflated appraisal. The appraisal was about 30% over. A $600,000 home appraised for $900,000. Subject is located next to train tracks, and comparables next to rivers were used. The guy could not sell the home at that price and he was found shortly later hanging from a tree. Suicide. Lawsuits. Distressed property. That appraiser lost her license. The borrower lost his life.

  6. This is not an easy topic. Many appraisers complete very cursory valuations as the fees are too low to take the time for a credible report. Two or more valuations a day is ridiculous and even a tract home in my area will take a full day if one can get lucky to talk to brokers and the buyers of each sale. There are the appraisers who try and please clients and others that have little training and still do not understand basic concepts after 20 years. Clients like low fees and hire low level appraisers, but do not want to take responsibility. The most powerful tool is to JUST SAY NO to assignments, and I turn away three a week. My bottom fee for basic tract home is $1,500 and in my area I have gotten fees as high as $35,000 for a high end residential property. If I need to take a month to value one property, I charge accordingly and do whatever it takes to cover every base. I find it strange in parts of my high end market of $3,000,000 to $80,000,000 homes that appraisers charge $750 to $1,500, when clients will easily pay $5,000 to $15,000+++ for a top valuation that covers everything. You pay for what you get and many appraisers are ignorant of the risks they take and do not see the future and possibilities. My practice is focused on valuation litigation and I started in 1983.

  7. Considering I’ve cut value (purchases) by more than $2,000,000 in the month of April alone, and by $5,000,000+ since the first of the year, seeking the truth can be time consuming and often thankless.

    Stop the churn of spitting out 5 to 9 appraisals a day, doing quick 30 minute reviews, and or the outsourcing of the meat of the appraisal to 3rd would countries on different continents.

    Profits before principles might make you an all-star, but taking down all of the mirrors in your home so you don’t have to look at yourself is not a way to live. My pillow is feather soft, how’s yours?

    Seek the truth.

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.