Last Update: 02/24/16
Sometimes, the easiest way to understand something is to consider one example. In the case of appraisal error, a recent news story about a phony and fraudulent New York home appraisal really helps to make things clear. In many instances, appraisals are bad because of fraud – and because of negligence.
Great Example of Appraisal Negligence
In a story written by Jonathan Miller for the Business Insider, entitled “This Nightmare Home Appraisal Story Shows Why The Housing Market Is Still Messed Up,” the photographs add a lot of punch and really help to show how bad and how blatant many real estate appraisals are, all across the country.
In the New York case, the appraiser included a house with a HOLE in the side of it (you can see it in the photos that accompany the story) in his chosen properties that were used as comparables in a refinancing appraisal.
Brings new meaning to a place being a “hole in the wall,” doesn’t it?
Why would an appraiser do this? Because this would bring the appraised value of the property down. Lower than it should be. Now, why would an appraiser want to bring in an appraised value that was lower than it should be? Because they profit from it – by rushing to get the job done and their invoice paid without making sure that the job has been done right.
Appraisal Fraud vs Appraisal Negligence
Much of the appraisal fraud we’ve been monitoring here involves the rampant fraud where appraisals have been artificially inflated by those involved in mortgage fraud. A higher appraisal means a higher loan.
For example, in the local news there is a story about a Keys mortgage fraud case that has hit the Florida criminal courts. Seems that phony, artificially high appraisals were used by the wrongdoers to get a higher loan and therefore, more money in their hands.
However, it’s important to remember that appraisals can be flat out wrong not only because real estate appraisers are inflating the values but also because there are appraisers that are making obvious and blatant errors just to churn their files and get them done.
Do we really think that the appraiser bothered to go and drive by that hole in the wall house? Don’t we believe that he just sat at his desk and whipped out that appraisal without making sure his data was correct?
In Florida and across the nation, real estate appraisers must abide by the Uniform Standards of Professional Appraisal Practice (USPAP). It’s their rule book.
Real estate appraisers also have to be licensed to appraise real estate in the State of Florida. You can check to make sure that an appraiser is licensed to work here in Florida with a simple online query. You can also file a complaint about a Florida real estate appraiser with the state licensing board via the web.
However, when you are involved in a real estate transaction – like a short sale, where the appraisal value and sales price will impact your potential deficiency – then it’s best to get the assistance of an experienced real estate attorney to help you investigate the appraiser (or appraisal company) that the bank wants to use, as well as any history of complaints and disciplinary action.
Your real estate attorney can also help you review the comparables that the appraiser has selected in making his findings. Is he right? Is there a hole in the wall in one of the properties?
In a real estate appraisal of a single family home remember:
- the comparables should have square footage
- the comparables should be around the same age
- the comparables should have the same number of bedrooms, bathrooms, etc.
- the sales shown in the appraisal should have closed within the past 6 months
- the sales should involve individual buyers and not corporations or investment companies (because those sales may be skewed lower than an individual buyer’s sales price).
A good piece of advice when you and your family are purchasing or selling your family home in one of the biggest transactions of your life is to at least talk with a Florida real estate lawyer. Getting someone to review all of the paperwork isn’t as costly as most of us think it is. And it’s always a lot cheaper than paying to fix a problem after a closing occurs. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.
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Looking for firm to handle numerous appraisal liabilty cases. My company has thousands of loans orginated in Florida with a startling number of grossly over-appraised properties. The properties have been taken back in foreclosure and our lien position has been wiped out. Due to the high number of cases we have we are looking for a firm that is willing to handle the cases on contingency. Please advise
Funny how creating a reverse auction business model to hire the worst appraisers on planet earth for the lowest fee bid works out to the detriment of homeowners…don’t you think?
You get what you pay for and in this particular case you don’t get what you don’t pay for (QUALITY).
Sorry chumps, you can thank the banking lobby and uncle sam for this cluster f*** of a mess.