Just How Widespread Is Appraisal Inflation?

This commentary on appraisal inflation comes to us from Jonathan Miller at Matrix. For those who are not familiar with Mr. Miller, he is the President/CEO of the Manhattan-based real estate appraisal firm, Miller Samuel.

No Smoking Gun: Appraisal Inflation Is More Widespread Than You Think

Why does the appraisal inflation issue get so little play in the media? Likely because most real estate mortgage industry people close to the issue downplay the problem since there has not been a quantifiable cost to be held accountable to.

Their recommended solution of self-policing is a cop-out and rarely works in any profession. The appraisal industry is one of the most fragmented of all.

This don’t ask, don’t tell attitude has created the appraiser mantra – Get work. Hit number anyway you can. Do it Fast. Get more work. Talk a lot servicing the clients needs. Repeat. If the appraiser doesn’t take this path, then they need to find other types of clients. A whole generation of experienced appraisers have been forced out of the business. Its the era of the appraisal factory. Inexperienced personnel cranking out the reports is the norm of today. Some firms have appraisers that can generate 40-50 reports per week. Think about the time spent coordinating the appointments, travel to and from the property, inspect, visit all comps, confirm data, write up report, review, deliver, follow up on client questions and concerns, field irate calls from clients or borrowers if the appraisal is too low to make the deal, re-work report, re-send new final version…times 40 in a week?

There is virtually no appraisal oversight of appraisers on a state level (which is responsible to administer the federal law) because there is limited funds available for it and to make matters worse, many states take a portion of the revenue from licensing fees and allocate it to other purposes.

The appraisal inflation problem is much more serious than reported yet it can’t be proven by stats since the market has kept rising, hiding the problems. Most of the players connected to the process are generally happy.

The appraiser has no independence in the appraisal process, in any way shape or form. The entire structure of the mortgage appraisal system is seriously flawed. I find it absolutely amazing thats its been able to go on this long without some sort of regulatory concerns raised.

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9 Responses to Just How Widespread Is Appraisal Inflation?

  1. Anonymous says:

    the RE business is just rampant with questionable legal and unethical practices it can make one’s head spin. here’s a few more for you:

    – dual agency. they feel if they disclose this they’re fully covered. yah. what you don’t hear are all the chatterings offline between the buying and selling agents as they discuss former rejected offers, who else has potential interest to drive up the price, the fact that commissions are higher for a dual agent deal

    – pulling listings before their expiration so as to reset the DOM to skew the statistics and narrow the price gap so the property shows up on people’s daily tickler file

    – realtors having unfettered access to change the status on a GSMLS.com property regardless of it’s legal status (e.g. house is in attorney review but it says it’s not).

    – home inspectors referred by agencies. if they don’t get the deal done they don’t get referral business.

    i could go on.

  2. Anonymous says:

    oh one more. sellers disclosure statement. this is not done as a service to the potential buyer. it’s done so the agency can’t be held responsible if something shows up that wasn’t on the disclosure.

  3. Anonymous says:






  4. grim says:

    I’ve heard of a number of properties that were under contract but still listed as active due to the fact that the contracts were contingent on the buyer selling the property.

    The properties remained listed as active so that they would continue to receive exposure should the contract fall through.


  5. Anonymous says:

    grim, you are correct that is the normal business practice however what i’m talking about is not that. it’s where you have prolonged or pessimistic outcomes to the contract process whereas the selling agent will list the property as available to drum up potential buyers in the pipeline should the deal fall through. i’ve seen it on more than one occasion.

  6. Anonymous says:

    I worked for an Large Insurance company as a Risk Control Analyst for my College Internship. We were taught to do Replacement Cost Apprisals for Replacemnet Value Costs of buildings using comparative materials and labor minus the land values.

    In other Words, what your property WAS worth should your shack end up the victim of a Tornado, Fire or the likes. The True Value of these Shacks are NOWHERES near the Values placed on them by the Real Estate Industry, Appraisers and their little Banker Friends.

    As House Sales stagnant and Prices decline, I suspect that we and the Insurance Companies WILL SEE more than a few McMansions going up in Flames as the HouseSlaves attempt to Escape their “Financial Nightmares on Elm Street”.

    It HAPPENS every Bust !


  7. Anonymous says:


    So, should I save my brats for the Bonfire of the McVanities?

    I need to know, ’cause they’re in the freeze with Nov 13 05 expiration dates, and I was saving them for that date… my predicted real drop date. [Pre-2005 pricing.]

    I suppose I could buy new ones next summer.


  8. Anonymous says:

    The McMansion BONFIRES will be widespread problem in next 2 years!

    Go Ahead and Buy and be a bagholding FOOL!



  9. Anonymous says:

    I will add another questionable practice which is common in our area; in all other states the Realtors.com, GSMLS & NJMLS, etc show almost the full details of the MLS listings, including square footage, taxes, and most importantly the property address. I guess NAR’ monopoly on information is even in higher gear in New Jersey than the rest of the country. Any one knows why?


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