Appraisal inflation – the practice of overvaluing homes – is a growing problem, according to 78 percent of Inman News readers who participated in an informal survey.

Appraisal inflation – the practice of overvaluing homes – is a growing problem, according to 78 percent of Inman News readers who participated in an informal survey.

An Inman News series this month highlighted problems with inflated appraisals. Some appraisers have blamed the problem on pressure from mortgage brokers, loan officers and Realtors to “hit the numbers” required to complete a real estate sale, while other real estate professionals have said that it is up to appraisers to steer clear of such practices.

Homeowners whose properties have been overvalued can run a greater risk of overextending themselves financially and defaulting on their loans, and appraisal inflation has also been used to artificially increase prices in mortgage fraud schemes.

Inman News asked, “Do you think appraisal inflation is a growing problem?” About 78 percent of respondents said appraisal inflation is a growing problem; 9 percent said it is not a growing problem; 5 percent said they aren’t sure; and 8 percent had other responses. Also, more than one-third of the survey participants submitted more detailed comments.

Michael Gandy of Appraisal Associates, who has been in the appraisal business for 29 years, said there are some appraisers working in the region that have been nicknamed “The Stretchers” because of the values they are able to reach in their appraisals. “I have never seen it as bad in the Las Vegas area as it is,” he said.

Donald A. St. Jean of Heritage Appraisal Inc. said, “The appraisers (who) are giving the (inflated) value are getting all the work. Something needs to be done with loan officers and brokers so that they are held responsible.”

And Gary Stang of Gary Stang Realty Services offered this, “I don’t believe appraisal inflation is just a growing problem; it is already a huge problem. I also believe it is better referred to as ‘lender blackmail pressure,’ as that is the root cause of inflated appraisals.”

Beverly A. Bayer of SRA Bayer Appraisals in Moreno Valley, Calif., said the “go-along appraisers” and “the loan brokers who put on the pressure” share blame. “The answer is for all appraisers to stand up and say, “No,” and for those who pressure us to be held responsible.”

Bill Rose, who also participated in the survey, said he has had enough of the industry: “I resigned my license cannot compete with the criminals.”

Joann Mariner, a real estate investor, though, has a different take on appraisal problems. “The main problem with appraising as a profession is that it is viewed as a science rather than the art it is,” and she said appraisals are inherently subjective. “No appraiser will admit to making a mistake. I do not know whether computerized appraisals are the answer, but they may be successful in removing some of the subjectivity of appraisals.”

Allen Lorentzen, manager of Gay Milligin & Co. in Santa Barbara, Calif., said appraisals have to account for rapidly rising home prices. “With true appreciation and multiple buyers at rising prices, how can an appraisal come in at value, supporting a new loan on a property where the (comparable properties) are as old as six months? There has to be a way for appraisers or lenders to adjust for appreciation.”

Similarly, Russell Shaw of John Hall & Associates stated, “The market sets the value – not the appraiser. The fact that the ‘comps’ don’t justify the actual value (the price a willing buyer will pay a willing seller) is almost irrelevant.”

An anonymous respondent stated, “I think in order to have something to write about you are blowing this way out of proportion. Stick to the real problems.”

***

Send tips or a Letter to the Editor to glenn@inman.com or call (510) 658-9252, ext. 137.

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