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 Five Suggestions for Honest Appraisals Part II: Fraud and More - read story

> Excellent article in your May issue regarding the Five Suggestions for Honest Appraisals! I have found, however, that there are not enough investigators to adequately police the industry. If there were, I believe, we could drastically reduce the rampant fraudulent activity in a very short amount of time. I have personally made numerous attempts to turn in dishonest mortgage brokers and have never even received a return call, I assume, because of the lack of investigators. There is a great deal of mortgage and appraisal improprieties in my area. However, I see no solution if we have insufficient will or inadequate funding to correct the problems. Thanks for your efforts to call the problem to the forefront. - Dave Conant

 > While I heartily agree with most of Doug Quezner's points (Five Suggestions for Honest Appraisals, May 2005), his stated reluctance to report fraudulent or misleading appraisals to regulatory authorities is misguided. In fairness, I, too, used to be hesitant to report obviously fraudulent or misleading appraisals that I had reviewed until my State regulatory office readily assured me that I would not be violating the confidentiality rule by doing so. In my opinion, blowing the whistle on appraisers who turn in outrageously inflated values should be considered a duty and a responsibility, and honest appraisers and reviewers should never fear accusations of attempting "to eliminate the competition" by advising State authorities in cases of obvious fraud. I don't consider dishonest appraisers to be my "competitors", and neither should Mr. Brauner or any other appraiser who adheres to the standards and rules of the field.  Ultimately, our tolerance of such abuse is at the cost of our own, collective professional credibility.  - Don Fiore

 > We always talk about unscrupulous or incompetent appraisers and that certainly is a major problem. Very rarely, however, does anyone talk about the underlying and very much contributing factor: the client!  For years we have been pressured to do reports at an ever-increasing rate at an ever decreasing fee.  For example, we work with a mix of AMCs, banks and credit unions.  We choose not to actively pursue mortgage brokers in my areas of coverage for various reasons (which is another article). Just over a week ago we received an order from one of our AMCs. They have a pricing schedule that is lower than many of the other clients we work for. We made this schedule for them, at their request, because they also service another client that we are targeting as well.  So, they recently connected with another member of our client base.  An order came from the AMC through this client.  We would have gotten the order directly from the client in the normal course of business and at a higher fee. However, since it came from the AMC, it was at a lower fee. 

The AMC is selling the client convenience but they are not asking the client to pay for the convenience, as most of us do in the normal world. Instead, they are going to the service provider and asking them to pay the AMC by working for a lower fee. The last time I checked, I was in business to make a profit. So, if the fee keeps decreasing, appraisers are forced to cut corners in order to make any profit. I know for a fact that many appraisers in my area do not take the time to drive and look at the comparables. They copy and paste photos from the MLS and rely solely on what the MLS listing sheets say.  

Another challenge is that most clients are paid on commission and really don't understand what we do and what our role in the transaction is.  As a result, the only value of an appraiser, to most clients is (1) how fast can you deliver the report (2) can you get the value needed to make the loan. If you aren't fast enough and don't get enough value, they just find someone else.  Often, they find someone who works on their own, out of a bedroom in their home and with no overhead.  This "appraiser" then cuts the fee and takes all the shortcuts. Therefore, rather than being a respected professional who is seen as someone who protects the interests of our clients, we are reduced to order taking, form fillers.  Hence the lower fees. I know that many of today's technologies save us time and money with respect to 10 years ago.  But has any one checked the price of gas lately?   -Michael J Geis

> I am writing this letter probably as one of my last efforts in the real estate appraisal business. I have been involved in real estate for over thirty years now, the last 20+ years in the capacity of an appraiser. Health is the culprit in my case. I've read several articles over the years concerning problems in the appraisal industry, and believe it or not, other professions experience some of the same problems. The difference with appraisers is that they are voicing their grievances in a manor that is casting a huge shadow over the entire industry. Articles in you magazine, such as "Five Suggestions” and "Five Step Program for Honest Appraisers," and in other publications, suggest that this profession is imploding. While I'll admit that there are problems in this profession, do we really need to air our dirty laundry in the public's eye? I wonder what an attorney would do with some of these articles if he had an appraiser in an adversary position in court on the stand?

Rather than “Five Suggestions for Honest Appraisers,” why not "Five Suggestions for the Professional Appraiser." I realize that we've got problems, nearly every industry has. If you don't believe that, take a look at the accounting industry and the number of major corporations that have recently been cited for "creative bookkeeping." My point is that rather than airing our grievances in public, we ought to concentrate on promoting education, training and informing each other, like the other articles in your magazine such as "Speaking like a Pro," "Understanding your Market" and "Moisture and Mold." All of these are informative, positive and helpful to the experienced Professional. - David R Phillips

> With respect to the lenders' overt pressure on appraisers that I read about, I keep coming to the same conclusion: Conflict of interest is not a complex idea. Anytime the person who buys the appraiser's services stands to benefit from a higher valuation there is a conflict of interest. Also, the person who orders the appraisal is not really the intended user. Who actually uses the appraisals we deliver? Who really wants to know if the property is not worth what someone is paying for it? The answer is the lender. Not the loan officer, broker or processor but the larger company. For example, whenever I appraise something for XYZ Bank, it was probably ordered by a loan officer or processor at the local branch. They want a certain value because they make commissions on loans. However, they are not the intended user. The intended user will be the large lending institutions: Chase Manhattan Bank or Chase Home Finance; not Mr. Loan Officer. 

Taking the responsibility for ordering appraisals out of the hands of loan officers and processors is a good start to obtaining objective values on appraisals. Large institutions should have a system in place whereby appraisals are ordered based on overall quality and objectivity first and then turn time performance second. Of course, value should not even be on the list. The department responsible for ordering appraisals should demand good appraisals and should assure its approved appraisers that they will not be penalized for appraising less than sales price or desired value. For many lenders the loan officer or processor can order appraisals from whomever they want and can stop using them for any reason they want. Fear of losing business because of low values is very real and appraisers have the right to be worried and upset about this. Make no mistake about it, if you consistently appraise for less than sales price or requested value you WILL lose business and it's not illegal or unethical for them to pull it from you. They have the right to order from whomever they want for whatever reason they want. It's a very difficult situation and will never be resolved until this inherent conflict of interest is addressed. - Steve Flanagan

> I take exception to item #5. To say that an appraiser “always hits the value” when referred by a real estate agent is off base. I agree there are unethical real estate agents out there, just as there are unethical appraisers. But most real estate agents who I work with would rather have a qualified appraiser who knows the local market determine the value, regardless of sales price. Besides, any qualified real estate agent should be able to re-negotiate a missed value or sale price. - Tom Troll

> I hear many appraisers complain about this problem but rarely any solutions. Mr. Quenzer presents a solid and well-organized article on how to the address the problem. I would hope that our professional organizations would consider working on all or any of these items.  - Betty Phifer 

> The remark at the end of the first of "Five Suggestions for Honest Appraisals" is an unwarranted slam of hardworking volunteer review boards, state licensing boards and ethics and review and counseling committees across the country. I personally know most of the board members in my state and know how hard they work, that fines are levied and licenses revoked. I have served as an Assistant Regional Member for the Appraisal Institute Review and Counseling Committee and can assure you that referrals are taken very seriously and that panel members spend a great amount of time investigating referrals. - Brent Thompson

> You left out the single best way to foster honest appraisals - simply patronize the honest appraisers, no matter if that means that some of the time the loan amount will have to be adjusted or the loan will fall through. Every time a bank or mortgage broker uses a “make the numbers appraiser” we pat that appraiser on the back and say “good job, go out and do more like that!” It is a vicious cycle that will never let the honest appraiser come out on top until the circle is broken. - Lawrence G. LaCroix, SRA

> Let me give you a sure-fire way for practitioners to retain and add clients.  Follow the simple advice of Richard U. Ratcliff, PhD, MAI, who said: “I urge that you have faith in the power of excellence. For those who excel in professional knowledge and skill, there need be no concern for competition, for excellence is itself a monopoly.”  - George K. Cox, MAI, SRA

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