Working RE News: Housing Collapse: Whose Fault?

"Homes have been appraised too high in some cases but it seems that the accusation is painted with too broad a brush than the few dishonest appraisers who were the exception to the rule."

Editor’s Note: In this opinion piece, Mike Foil expresses why appraisers are not to blame for the housing collapse.

Is there a tendency to use the term "inflated appraisals" too broadly in connection with blame for the financial crisis? I have noticed that statements such as "over-valued" and "inflated appraisals" are mixed into the blame for just about anything that has anything to do with the housing meltdown. I do not deny that there were appraisers who compromised themselves to get an order and earn a fee but they were the exception.

Homes have been appraised too high in some cases but it seems that the accusation is painted with too broad a brush than the few dishonest appraisers who were the exception to the rule.

I read where "appraisers over-valued homes" when the market was booming. I may be as old as dirt but I remember back to 2005 when lender guidelines required at least two sales from within six weeks and expected upward time adjustments even to those. The job of appraisers is to research the market, analyze the findings and report the results in a meaningful manner which is supportable by the market data. So, when we did that, using recent sales and did report an opinion of value, based on recent sales in a market with prices increasing at rates over one percent a month, the market did support the sales price for the subject. It was not a case of "bad appraisers" or "inflated appraisals" in a large majority of the cases, it was that the buyers and sellers were expecting to pay more this month than they did last month and the MARKET data supported upward time adjustments and higher opinions of market value.

Appraisers did not have a crystal ball to foresee what would happen. There was speculation that the "bubble would collapse" and it certainly did, but at the time the market data showed rising prices and buyers more than willing to pay the higher amounts. To me, appraisals done in that market and with that data do not translate into "inflated appraisals." It just means that appraisers worked with the then-current market data and produced a supportable report using the same.

The fact that values ended up tanking is not proof of bad appraisals as it seems many believe.

I believe the appraisal process actually works when performed by an honest appraiser. I have been doing this a very long time and am still amazed, at times, at how well the process works when you just let the market data speak and make reasonable adjustments for the differences. When honest appraisers are allowed to do their jobs without unrealistic "scope creep," UAD nonsense, etc. it works. To the voices who say we need to include a wide range of data into a statistical analysis in order to have a "process" that is reliable, I would answer: "garbage in, garbage out." You are still subject to the human element in the selection of the data and the weight applied to different aspects but you lose the value of the human element when you bypass a physical inspection and an appraiser’s judgment for the clear differences between the various properties. I do not believe we need an overhaul of the process; we just need appraisers who have the backbone to do an honest job.

I am convinced that most appraisers by far good, hard-working, honest people doing their darndest to do the right thing and produce a credible report. Yet, appraisers are easy targets. When things go bad, people cite the few bad guys and repeat the examples of shoddy work and lump all appraisers into the same category. Now, in a declining market, appraisers are being blamed for values that are "too low." Folks, we take the market data and report such.

Thanks to Buzz Forum

Good Read from American Banker: Appraisal Management Companies Create More Problems Than They Solve

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