A key problem in today's home mortgage industry is created by appraisers who bend their ethical commitments under pressure to "hit specified numbers" in their appraisal reports. This often results in inflated property values that are, in many cases, much higher than realistic market values. This can ultimately cause major problems for home buyers who could be paying on a mortgage that's larger than their property's true value. That's a common scenario that leads to foreclosure actions.
It can also be a serious problem for banks and mortgage companies. The last thing they want is to deal with foreclosures. The pressure on appraisers usually comes from real estate brokers who are desperately trying to arrange financing for a home purchase. In some cases, the pressure comes from individual home buyers or sellers.
About 90 percent of real estate appraisers are experiencing pressure to come up with certain specified values, according to a recent research survey of 1,200 appraisers. That number is up sharply from the same type of survey conducted in 2003, when 55 percent of appraisers felt pressured to reach predetermined values. The American Society of Appraisers believes that this pressure is a real problem for appraisers. The group is committed to supporting legislation to reform fraudulent practices in the mortgage lending industry. They are actively supporting legislation to combat predatory lending and mortgage fraud.
"I'm not surprised that so many appraisers surveyed still feel pressured to hit a particular number to close a deal," said Mike Evans, with the Society of Appraisers. "There is currently little regulation or incentive that stops this type of behavior from taking place." ASA supports the consumer's right to receive a loan based on an accurate appraisal, a society spokesperson noted. "It's in the homebuyer's best interest to receive an accurate appraisal to ensure that they are not over-paying for their loan."
"Homebuyers should take an active role in scrutinizing the practices of everyone involved in their home purchase," Evan said. "If they feel that agents are overly aggressive in wanting the deal to go through, or if the price of the house they want to buy isn't comparable with other similar homes in the neighborhood, they should be wary."
The FDIC (Federal Deposit Insurance Corporation) has taken the lead in informing banks of their concerns that some appraisers are not following their Uniform Standards of Professional Appraisal Practice for federally related transactions. Special areas of concern include appraisals for commercial real estate and residential tract developments.