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The report asks the appraiser to describe the interior and exterior of the property, the neighborhood, and nearby comparable sales.

The appraisal bubble – Center for Public Integrity

An appraisal costs several hundred dollars and, generally, the borrower pays this fee. If the appraisal comes in at or above the contract price, the transaction proceeds as planned.

House prices in Vancouver continue to edge lower

If the appraisal comes in below the contract price, however, it can delay or derail the transaction. Chances are neither you nor the seller wants the transaction to fall through. As the buyer you have an advantage, in that a low appraisal can serve as a negotiating tool to convince the seller to lower the price. While appraisals help buyers avoid overpaying for homes, a seller may feel that a low appraisal is inaccurate and be reluctant to drop the price.

If a bad appraisal is standing between you and your home purchase or sale, look into getting a second opinion via another appraisal by different person. Appraisers can make mistakes or have imperfect information. Better yet, present a factual case for a higher value to the original appraiser. He or she may agree with you and revise the evaluation. No one wants to overpay for a home. Sellers should also know that federal guidelines intended to eliminate the inflated appraisal values that contributed to the housing crisis sometimes cause appraisals to come in below fair market value and can make low appraisals difficult to challenge.

The home needs to appraise at or above the amount you want to refinance for your loan to be approved. However, if your existing mortgage is an FHA mortgage, you can refinance without an appraisal through the FHA Streamline program—a great option for underwater homeowners. Before real estate prices began to plummet in , some sounded the alarm on fraudulent appraisals and lender pressure, but few listened to the warnings, least of all Congress, industry regulators, and the Justice Department.

David Callahan, a founder of the public policy think tank Demos , was one of the first people to study inflated appraisals and lender pressure. In , Callahan wrote a paper describing the financial incentives for lenders and appraisers to pursue inflated appraisals. The goal of lenders, brokers, real estate agents and developers was to ensure that a home loan closed without a problem, Callahan said. All those people exert pressure on appraisers to inflate values.

In a study by October Research, a real estate news provider, 90 percent of more than 1, appraisers polled reported feeling pressure to change property values, usually from lenders, mortgage brokers or real estate agents. In fact, Congress had struggled with the issue of lender pressure on appraisers since the savings and loan crisis of the s.

In recent years, Congressman Paul Kanjorski , a Pennsylvania Democrat, has been the most vocal proponent for stronger regulation, proposing legislation in that would have set stiffer appraisal independence standards. The legislation, which would have prohibited lender coercion of appraisers and established penalties for it, was folded into the Mortgage Reform and Anti-Predatory Lending Act.

The legislation faced stiff opposition and lobbying by the banking and mortgage industry, which argued it would adversely impact credit availability, and the bill was not taken up in the Senate after passing the House.

Appraisal industry insiders say part of the difficulty in policing the process stems from regulatory fragmentation. Appraisers fall under the jurisdiction of state regulators, which enforce standards set up by the Appraisal Foundation , a nonprofit industry group authorized by Congress. State licensing is overseen by the Appraisal Subcommittee , an agency created by Congress in Hyped appraisals did not escape the attention of federal banking and savings and loan regulators, but reports published since the mortgage industry collapse show that those officials did little to stop the practice.

Among the allegations, the lawsuit claimed Ameriquest engaged in deceptive or misleading practices to obtain inflated appraisals substantially beyond the market values of homes. The company, which closed in , denied the allegations. Problems like these only seem to come to light during declining markets and concerns are put on a shelf when buyers return, says Dave Biggers, founder and CEO of the real estate technology company a la mode, inc.

In an appreciating market, appraisals five to 10 percent beyond value are not an issue, he said, and home values climb beyond appraisal values soon after the sale. Since the bubble burst, the FBI has focused most of its real estate efforts on appraisers and other fraudsters who developed intricate schemes to defraud banks.

Eight ways to improve your home appraisal

The Justice Department is not going through the wreckage looking at the institutionalized lender pressure on the appraisal process. An FBI official, asking not to be identified because the agency has no official position on the matter, said they view the matter as a regulatory issue to be addressed by Congress not a matter of law enforcement.

Those cases target real estate speculators and mortgage brokers who work with appraisers to sell a house for far more than its true value. So far, however, there have been no prosecutions of lenders who pressured appraisers to inflate values.

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Instead, the highest-profile investigation of the appraisal industry has come from New York Attorney General Andrew Cuomo. In , Cuomo filed a lawsuit against First American Corp. The suit is pending.

A Retiree’s Home Sale Dilemma

In addition, the complaint alleges that executives at eAppraiseIt knew its appraisal arrangement with Washington Mutual broke the law. Cuomo also subpoenaed Fannie Mae and Freddie Mac. The code, which affects all loans eligible for purchase by Fannie and Freddie, bans lenders and brokers from pressuring appraisers to hype appraisals by threatening to withhold future business as punishment. Lenders must inform appraisers when they are removed from qualified use lists and allow them to appeal. It also bans loan origination staff from ordering appraisals directly — instead, the lender must use other in-house staff or go through a middleman appraisal management company.

Even so, the incentive to pressure appraisers still exists, even for supposedly independent appraisal management companies. Despite the changes, the new code has been panned by both the appraisal industry and some lenders. In fact, Congress had struggled with the issue of lender pressure on appraisers since the savings and loan crisis of the s. In recent years, Congressman Paul Kanjorski , a Pennsylvania Democrat, has been the most vocal proponent for stronger regulation, proposing legislation in that would have set stiffer appraisal independence standards.

The legislation, which would have prohibited lender coercion of appraisers and established penalties for it, was folded into the Mortgage Reform and Anti-Predatory Lending Act.

The legislation faced stiff opposition and lobbying by the banking and mortgage industry, which argued it would adversely impact credit availability, and the bill was not taken up in the Senate after passing the House. Appraisal industry insiders say part of the difficulty in policing the process stems from regulatory fragmentation. Appraisers fall under the jurisdiction of state regulators, which enforce standards set up by the Appraisal Foundation , a nonprofit industry group authorized by Congress.

State licensing is overseen by the Appraisal Subcommittee , an agency created by Congress in Hyped appraisals did not escape the attention of federal banking and savings and loan regulators, but reports published since the mortgage industry collapse show that those officials did little to stop the practice. Among the allegations, the lawsuit claimed Ameriquest engaged in deceptive or misleading practices to obtain inflated appraisals substantially beyond the market values of homes. The company, which closed in , denied the allegations.

Problems like these only seem to come to light during declining markets and concerns are put on a shelf when buyers return, says Dave Biggers, founder and CEO of the real estate technology company a la mode, inc. In an appreciating market, appraisals five to 10 percent beyond value are not an issue, he said, and home values climb beyond appraisal values soon after the sale. Since the bubble burst, the FBI has focused most of its real estate efforts on appraisers and other fraudsters who developed intricate schemes to defraud banks. The Justice Department is not going through the wreckage looking at the institutionalized lender pressure on the appraisal process.

An FBI official, asking not to be identified because the agency has no official position on the matter, said they view the matter as a regulatory issue to be addressed by Congress not a matter of law enforcement. Those cases target real estate speculators and mortgage brokers who work with appraisers to sell a house for far more than its true value.

So far, however, there have been no prosecutions of lenders who pressured appraisers to inflate values. Instead, the highest-profile investigation of the appraisal industry has come from New York Attorney General Andrew Cuomo. In , Cuomo filed a lawsuit against First American Corp.

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The suit is pending. In addition, the complaint alleges that executives at eAppraiseIt knew its appraisal arrangement with Washington Mutual broke the law. Cuomo also subpoenaed Fannie Mae and Freddie Mac. The code, which affects all loans eligible for purchase by Fannie and Freddie, bans lenders and brokers from pressuring appraisers to hype appraisals by threatening to withhold future business as punishment. Lenders must inform appraisers when they are removed from qualified use lists and allow them to appeal.

It also bans loan origination staff from ordering appraisals directly — instead, the lender must use other in-house staff or go through a middleman appraisal management company. Even so, the incentive to pressure appraisers still exists, even for supposedly independent appraisal management companies. Despite the changes, the new code has been panned by both the appraisal industry and some lenders. The National Association of Mortgage Brokers filed a lawsuit to try to block the rules, arguing that the code puts smaller mortgage brokerages at a disadvantage because they will be forced to rely on lenders to obtain appraisals for their customers, thereby limiting their ability to shop for loans.

The association dropped the action earlier this month. Appraisers who work for themselves or small businesses say the code will end their careers since mortgage brokers and other loan generation staff can no longer contact them directly. Instead, they say the code in effect directs all business to appraisal management companies, the unregulated middlemen that are often subsidiaries of lenders.

Appraisers also dislike the plan because some appraisal management companies take a hefty administrative fee and pay low rates to appraisers, which experienced appraisers say will force them out of the business and turn the industry over to less experienced appraisers who are more likely to make mistakes.

Pressure will still come from the management companies, said Dodd, the Virginia appraiser.


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