The New York Daily News ran a story today on the problem of inflated appraisals. The article addresses ‘run of the mill’ overvaluation rather than the type usually involved in stories posted on Mortgage Fraud Blog.
Let’s say you’re trying to buy a house. You lost your last two bidding wars, so this time you go in with guns blazing.
Forget the asking price, you bid more – maybe, too much more. Your mortgage broker has a sense you’re overpaying, but he’s determined to see this deal close. If you don’t, he doesn’t get paid.
So he whispers to the appraiser: “I really need this valuation. If you can’t appraise for the amount they agreed to pay, don’t appraise at all.”
The appraiser’s been around the block a few times. If he doesn’t come back with the right number, he can forget about future business from this broker. So the mortgage broker gets the valuation. The deal gets done. No one gets hurt.
Until you decide to sell the property. Then you may be in for a big surprise. By then, the market may be softer and the house isn’t worth what you paid. You may sell it and still owe money on the loan. Ouch.
Of course, this is a serious problem in the industry today. In otherwise clean transactions, except in cases where there have been unanticipated events (e.g. post-funding loss of employment), these types of overvaluations haven’t caused significant losses to the industry. With a softening market, however, the original overvaluations will be at issue – especially in the repurchase chain.
The group of professionals who seem most concerned with this practice are appraisers. Those who refuse to overvalue in order to close sales find themselves without business. Those who do overvalue perpetuate the problem. If you would like to read some interesting conversation from the point of view of the appraiser, visit www.appraisersforum.com