OpinionIndustry News

Real estate appraisals are outmoded

Perspective: Insiders need to rethink system of property valuations

Learn the New Luxury Playbook at Luxury Connect | October 18-19 at the Beverly Hills Hotel

The real estate appraisal system is broken and needs to be fixed. The fundamental problem is the conflict of interest among the lender who selects the appraiser, the borrower who pays for the appraisal and the investor who relies on the adequacy of the appraiser's opinion. Lenders are in a powerful position to pressure the appraiser to "hit" pre-ordained numbers since, as a group, lenders don't suffer the consequences of inflated valuations. Rather, the loans are sold to investors, who have become so mesmerized by the prospect of high returns that they've willingly ignored the reality that too many of the loans are justified by fictional appraisals. Realtors are culpable as well since they can become complicit in these scams either actively through added pressure on the lender or appraiser or passively through the guise of feigned ignorance that the appraisal is fictional. This complicity isn't surprising since the Realtor's motivation is not to protect the borrower or investor, but r...