I recently read about a state where the real estate appraisers are promoting legislation to prevent coercion of appraisers.  What they’d like to see is a law that makes it illegal for anyone to ask an appraiser to produce fraudulent appraisal reports.  It would be illegal to blacklist, bribe, extort, intimidate or refuse to pay an appraiser for not producing the specific appraisal results wanted.

This looks like a good idea.  If those who do these things to get their way with the appraiser’s work have no downside (fines and jail time) to discourage them, the so called “lender pressure” will never end.

Over the years I have gotten to know who the appraisers are that do “custom” work; appraisals that have a value conclusion based on the borrower’s or lender’s desires rather than a U.S.P.A.P. appropriate REPORT of the market value of the property.   I review appraisals for lenders.  Recently I reviewed an appraisal where the appraiser used four listings and one sale, ignoring all the other available sales data, in order to come up with a value conclusion that matched the developers sale price of a multi million dollar residential property.  What’s up with that???  It doesn’t meet the U.S.P.A.P.  It doesn’t meet FNMA guidelines.  It was a total piece of “custom” junk.   I don’t know what the conversation was between the lender and the appraiser, but the appraiser should be spanked good for that one.

I fall into a different category of opinion than those who are working to prevent the non coercion legislation (though it appears a good idea).  I say it is the appraiser who is at fault.  I mean to say, that if I was asked by someone to rob a bank and give them the money, I’d tell them to “buzz off!”  That’s an easy one.  But, if a lender asks me to produce a fraudulent appraisal report so they can close a deal that wouldn’t happen without the fraudulent report, and they offer to give me lots of appraisal assignments if I just “play along,” it is more tempting.  I can up my gross income working with a lender like that.  Really.  I can do great with those people.

I suggest here that most residential real estate appraisers work that way.  They roll over and give the lender any thing they want, as long as the work keeps coming.  And, they know that many state’s licensure and certification offices don’t have enough staff to pursue them if they get challenged for this kind of work.  Law with little or no teeth.

In an ideal world, every appraiser would “just say no” to coercive activities designed to get the appraiser to produce fraudulent appraisals.   If all appraisers said “NO,” the lending industry would have to live with appraisals that REPORT the market’s indication of what the property is worth.  This would leave lenders knowing what their level of risk is on loans they create.  And, it would make their real estate based securities more marketable.  And, the return they would get from the sale of those securities would be maximized due to the “known” risk rather than a great deal of “unknown” risk due to appraisal fraud.

Although an idealist, I do realize that I (and we) do not live in an ideal world.  When money is made available, integrity very often goes out the window.  It is on the news every day.

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