Pressure to inflate values at “pandemic proportions”

From the Charlotte Observer:

Pressure is on appraisers to inflate values

With home prices softening and sales volumes sagging in many local markets, real estate appraisers say that pressure on them to inflate values has reached pandemic proportions.

A new survey of the national appraisal industry found that 90 percent of appraisers reported that mortgage brokers, realty agents, lenders and even consumers have pressured them to raise property valuations to enable deals to go through. That percentage is up sharply from a parallel survey conducted in 2003, when 55 percent of appraisers reported attempts to influence their findings and 45 percent reported “never.” Now the latter category is down to just 10 percent.

Both surveys were conducted by October Research Corp., a Richfield, Ohio,-based firm that publishes Valuation Review, a popular industry newsletter.

The latest survey involved 1,200 appraisers representing a statistical cross-section of the industry in 50 states, the District of Columbia and Puerto Rico. The results have a margin of error of plus or minus 2.8 percent.

“I call it a perfect storm scenario,” said Alan Hummel, senior vice president of Forsythe Appraisals of St. Paul, Minn., one of the largest property valuation firms in the country with 40 offices and 190 licensed appraisers. Forsythe was a co-sponsor of the new research study.

“You’ve got a situation where sales are down so everybody in the deal needs it to go through” at the contract price — the mortgage broker, the Realtor, the lender, and even individual sellers.

Loan brokers are now routinely “dialing for values,” said Hummel. “They call up appraisers and say, we’ve got this sale at $335,000 at such and such an address. Can you get to that number?” If an appraiser answers yes, he or she gets the assignment. If not, the appraiser is bypassed.

Worse yet, said Hummel, when an appraiser comes back with a market value estimate that is lower than the sales contract price, the appraiser may not get paid for the work, and frequently is blackballed by the mortgage broker or realty agent.

The survey found that 75 percent of appraisers reported “negative ramifications” if they refused to cooperate and come in with a higher valuation. Sixty-eight percent said they lost the client — typically a mortgage broker or lender — following their refusal to fudge the numbers, and 45 percent reported not receiving payment for their appraisal.