Pushy Seller : Take for instance one case where I represented the buyer for a home they loved. The home was listed for $140,000 and the bank appraisal came in at $131,000. The seller was furious when he heard the news and demanded a new appraisal. We granted him one, using an appraiser of his choice, but made sure to sign an agreement that the buyer's were not bound to the new evaluation. Well, you can imagine what happened. The new appraiser was told about the situation and low and behold, the new value comes in at $160,000. Ummm, I might be mistaken but a $29,000 difference in appraisals starts to smell of bad fish. The comparable adjustments were obviously pushed beyond normal market and the bank refused to accept it. The sellers ended up selling at $131,000.
Pushy Builder : Or how about the builder who offers incentives if you go with their preferred mortgage lender. Many times I have seen them use in-house appraisers, who do a drive-by analysis, and give the value the builders are looking for. In the down turning market, I have seen some appraisals that appeared to have been pushed. The home we recently bought, for instance, had a fourth comparable that dated a year back. The appraisers notes mentioned this was not part of the original appraisal due to sale date, but added it at the request of the lender (who was the in-house lender for the builder). The notes stated this helped show the value. Well, any idiot can see that...but the market was still doing well a year ago, and since then, prices have come down and that home would no longer sell at the same value. So that "value" is now a false value, and should not have been used at all. That home "pushed" the value up on our home and I feel the appraiser should never allowed the builder to influence her judgement.
NEW RULES WILL CHANGE ALL OF THIS
Starting in 2009, some new rules are taking effect:
- Lenders will no longer be allowed to use in-house staff for initial appraisals
- Lenders are prohibited from using appraisals from companies they own or have an interest in
- More stringent appraisal review process to weed out junk appraisals
Of course there are many people screaming that this will hurt the appraisal industry. Yes, it will...by weeding out the bad apples that plague the industry, just like is happening in the real estate industry. But it will be a good thing for consumers, who might have paid too much for a home because the appraiser didn't have the guts to stand up to the bank.
I for one would like one more little piece added to the new rules:
- appraisers should not know the purchase price of the home when they do the appraisal. I believe this gives them a mark to shoot for and unfairly influences the appraisal.