There’s something rotten in the real estate industry and this time it doesn’t directly center around predatory lending.
It has to do with appraisals. An appraisal is a valuation of a home or property to determine its worth in the market. This valuation is required in order to qualify for a loan.
According to an expose´-type report by The Center for Public Integrity, crooked appraisers have had their licenses stripped for everything from having a conflict of interest (acting as both appraiser and loan coordinator) to preparing incomplete, inaccurate or downright bogus appraisals. Some of these appraisals contributed to pushing homes sales through at the exorbitant prices seen at the top of the housing boom.
In addition, some “good guy” appraisers say they are being pressured by realtors and lenders today to bloat prices in order to justify mortgages.
It sounds more like a mob movie than our current housing market, doesn’t it?
Still, these questionable appraisal practices were supposed to be staunched by the creation of the Home Valuation Code of Conduct in May 2009. The agreement stopped lenders from pressuring appraisers to ‘influence’ the results of their appraisals, but has created a separate, third party, largely unregulated appraisal management industry that has a CNN Money article calling such companies “appraisal mills, churning out values cheaply and quickly — and often, wrongly.”
So where does this leave the housing market?
What happened to the days when a house was worth what it cost to build it, give or take the value of the location and how well the building was maintained? Comps now consist mostly of bargain priced foreclosures and short sales, or previous “boom-era” sales that had prices inflated. The HVCC had the right idea, but does not seem to have gotten to the heart of the problem: the basic need for good, decent appraising.
