To view, click or mouse over the above tabs. Updated every Thursday for the previous week.
 

< Return to News & Press listing
02.09.2004
 Some US Appraisers Feel Pressure To Inflate Home Values
By Julie Haviv
Reprinted with permission from The Wall Street Journal

NEW YORK -- In an effort to keep their business thriving as the mortgage sector adjusts to the reality of waning refinancing and lower new purchase volumes, some mortgage lenders appear to be turning up the heat on home appraisers to overstate the values of properties they are appraising.

At least, that's what some appraisers are saying, according to a recent study from October Research Corporation, a provider of national news and information to the real estate services industry.

Overstating home values is detrimental to the housing market as lower-income groups are priced out of the market, and borrowers end up with inflated mortgages that they may not be able to recoup when selling the property.

October Research's report surveyed 500 fee appraisers from across the country, who have at least five years of experience in the residential real estate appraisal business. The survey was conducted by telephone in the second half of 2003. Preliminary findings were published in December, while the final report will be published this week.

October Research says the survey was developed as a response to requests from the appraisal industry for impartial, current research on its business practices.

Of the appraisers surveyed, 55% said they have felt pressure to inflate the values of properties, with 25% of those respondents saying it happens nearly half the time.

"Uncomfortable is a very powerful word but it speaks volumes to how appraisal professionals feel when they are asked to exaggerate the value or conditions of a property," stated Michelle Esso, project manager of the survey.

Doug Duncan, chief economist at the Mortgage Bankers Association, an industry trade group, said that given the sharp drop in refinancing volume over the past eight months, the pressure being put on mortgage appraisers wouldn't be a surprise to him. "Certain mortgage players have been squeezing the appraisers for higher values," he said.

In late May 2003, a widely watched gauge of refinancing activity, the Mortgage Bankers Association's refinancing index peaked at 9,977, a record high. It has since plunged to 3,250.6, indicating a decline of about 66% in refinancings. The purchase index is also down, but far less dramatically. In the latest week to Jan. 30, the purchase index slipped 1.7% to 444.0.

"I have received many calls from brokers asking me to change the value of an appraisal," said Steve Knobel, owner of Mitchell Maxwell & Jackson, Inc., one of the leading mortgage appraisal companies in the New York Metropolitan area.

"The pressure is not as strong on our end since we are so large, but I would say the smaller appraisal companies have probably been under a lot more pressure because they are relying on a smaller client base," he said.

Mitchell, Maxwell & Jackson, Inc. appraised 50,000 properties in the NYC metropolitan area last year.

One of the top reasons why appraisers decline work from mortgage companies is because they are pressured to exaggerate values and the condition of properties, according to the October Research survey.

And the primary concern of appraisers is losing business if they don't cooperate with mortgage lenders and brokers.

Appraisers also told October Research that they estimate that over 75% of the time, the majority of the appraisers in their market will go along with requests to exaggerate the value or conditions of property.

"Clearly the local appraisal industry sees this as a widespread problem," October Research's Esso said.

But some say that appraisers have no reason to give into these types of pressures, given that the housing market remains strong, at least in certain regions.

"There is really no need for an appraiser to inflate the value of property in New York City because all we are seeing is price appreciation," said Suzanne Bach, executive vice president at IPISkyscraper Mortgage. Bach says property values in New York City have appreciated by at least 5% to 7% over the past year.

Return to Top