Last Update: 04/18/16
The Importance of Real Estate Appraisals
It’s basic, if you want to buy a home in Florida with a mortgage, you need an appraisal of the property (you also need one if you want to refinance your mortgage). Appraisals are formal documents containing an expert analysis of the market value of the real estate. These expert opinions are used by lenders in evaluating whether or not to loan money, how much they are willing to loan to the borrower and whether or not the borrower can afford to repay the loan. Unless you are paying cash, then you’ll need to have the real estate appraised in order to close the deal.
Appraisers Provide Appraisals
Only certain people can provide real estate appraisals in Florida. These are professionals who are licensed real estate appraisers. They have specific education and expertise in valuing property and they are supposed to provide independent, ethical, unbiased analysis of real estate. You should be able to trust the appraisal to be accurate and fair.
Appraisal Fraud in Florida
Appraisal fraud happens when an inaccurate appraisal is used in a real estate transaction to the detriment of one of the parties involved (usually the buyer). When the expert appraiser does not provide the true analysis of the property, but chooses to give a grossly inflated value of what the home is worth in the current real estate marketplace, this may be appraisal fraud. Their report will not be accurate and unbiased.
Normally, the appraiser is honest and he/she provides a reliable appraisal report. However, there have been instances where the report is manipulated by another party so that the appraised value is increased higher than the real market value. This appraisal fraud can be done by a real estate agent or by the lender in order to make the sale or loan transaction happen.
For many years, appraisals were trusted and assumed to be unbiased and fair, no one suspected that they could be phony — until the rampant foreclosure fraud that occurred here in Florida.
Why is there appraisal fraud?
When someone inflates a real estate appraisal, a lender can lend more money on a mortgage loan (An artificially inflated appraisal can skew the Loan-to-Value Ratio used by lenders in determining whether or not to lend or to refinance a mortgage).
Also, in my experience, a segment of real estate agents, all of whom work on commission of up to 7%, are tempted to find “ways” to move a lot of real estate and to close deals quickly. Having a reputation of “getting deals closed” and getting seller’s “all of the money” can cause some to bend the rules.
How can you protect yourself against appraisal fraud?
In a real estate transaction, you can always pay for your own appraisal to be done by an appraiser you trust. You can also confirm an appraisal in some ways by comparing the appraised value with home sales in the area in the past few months, searching MLS or Realtor.com for sales information or asking for a independent appraisal review or a second appraisal.
For example, many lenders have been known to check property values on online sites like Zillow to check for home market values as part of their approval decision-making, even though the Zillow “zestimate” isn’t a formal, independent valuation by a professional appraiser. The Zillow Zestimate may not be an exact valuation of your home, but it may help you to determine whether or not the appraisal you’re got in hand is questionable.
For more information on appraisals and appraisal fraud, please feel free to contact a Florida real estate attorney for guidance. Your real estate lawyer can help you not only to close the deal with an accurate market value; if need be, your real estate lawyer can help you advance claims against anyone who presented you with a fraudulent appraisal in order to obtain damages from them for their fraudulent acts.
A good piece of advice is to at least speak with an experienced Florida real estate lawyer to learn about your rights. 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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I represent several homeowners that are in the foreclosure process. I was wondering if there are forensic appraisers that can determine whether an appraisal done at the time of closing was inflated. These mortgages are usually 3-5 years old.
Andy Treusch, Esq.