RESIDENTIAL APPRAISAL FRAUD, A CASE STUDY
I did an appraisal in downtown Vancouver, Washington a couple months ago. It is a one hundred year old house that had been painted up nicely inside and out. It had a new kitchen sink, bathroom sink and toilet. But, substantially the same house it was before it was cleaned up.
Some houses are bought and re-outfitted with new exterior siding, new insulated glass windows, new heating, plumbing and electrical systems, etc. This extensive work reduces the effective age of a house. That is, the house would be “made newer,” not just cleaned up, or maintained.
The value conclusion I derived from the market was less than the contract price on the house.
The lender then switched to an FHA loan application and had an appraiser do an appraisal of the same house for the FHA.
Miraculously, the appraiser for the FHA found the current market value of the house to be just over the contract sale price.
The lender sent the second appraisal to me, to show me the way of my error. Unfortunately, the second appraisal was (as I see it) a biased and fraudulent piece of work.
I called the FHA. They have a review process. They asked for the case number and will review the report. The appraiser will be required (if the report is found to be bogus) to attend some specific continuing education, or the appraiser will loose their FHA approval. AND, the FHA will deny insurance to the lender. YIKES!
Also, if the FHA thinks the report is bad, they will send it to the state that the appraiser is licensed in (and the subject property is in) with a complaint to the state.
I am attending an Appraisal Fraud class in a few days. I will take the FHA report with me and review it during the class. Then I will submit it to the FHA with my observation of what parts of the Uniform Standards of Professional Appraisal Practice (USPAP) it violates.
I will keep you posted on the progress of this investigation.
Many appraisers, who have been committing fraud with impunity for years, don’t realize the seriousness of their actions and that industry forces are rising up to deal with this kind of activity.
Ralph K. Olsen, MAI, SRA, IFA
Pacific West Appraisal Services, Inc.
pwas.net
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