Appraiser
Pressure
February 1, 2001
The
problem of undue pressure on appraisers continues. It's always been present, indeed, one suspects that as long
as appraisers have existed, attempts to influence values have been made.
Appraisers
have lived with this uncomfortable fact of life. Some handle it well, some don't.
The outcomes of coping range from caving in to the pressure and
pleasing short-term clients in the short term and achieving survival of
one sort or not caving in to pressure not pleasing clients in the
short-term and achieving survival of another sort.
Clients
ultimately have control of which appraisers gets which assignment.
This is not in itself bad but is liable to introduce bias.
If this bias is towards producing prudent loans, not all is lost;
if, on the other hand, this bias is toward producing loans, undesirable
results may ensue.
Appraisers
have long recognized the problem of undue pressure. The Appraisal Standards Board and USPAP has recognized the
issue and has made changes in the appraisal certification. To date, many legislators feel FIRREA and the operation of
the "market" are adequate safeguards.
Particularly with consumers, these protections may not be
sufficient.
Last
year, legislation was introduced in the House of Representatives that
contained a provision meant to address this issue. Section 129A(g) of H.R.
3901, states: "No creditor may compensate, directly or indirectly,
coerce, or intimidate an appraiser for the purpose of influencing the
independent judgment of the appraiser with respect to the value of real
estate that is to be covered by a conforming home loan or is being offered
as security according to an application for a conforming home loan."
Consumer organizations may eventually recognize this as an important
issue. Appraiser registration boards are beginning to recognize the
problem. Appraisal organizations have generally not addressed this
problem.
Recently,
however, in a letter sent to members and the chairmen of the House and
Senate Banking Committees, the Appraisal Institute has called for
congressional hearings on the lending community's ability to unduly
influence the independent judgment of a professional real estate
appraiser. The current president, Brian Glanville, MAI, wrote: "Our
members report that, too often, real estate mortgage creditors, lenders
and realty agents attempt to apply undue influence on an appraiser to
artificially 'make the value' on a property being appraised," wrote
Brian A. Glanville, MAI, president of the Appraisal Institute. "Such
pressure is problematic for the entire real estate industry because it
leads to inflated home values, causes aberrations in the marketplace, and
decreases bank safety and soundness and can damage the credit of
homebuyers" The Appraisal Institute letter calls for congressional
hearings in this matter. Their
suggestion that increasing lender accountability for the appraisal of
collateral property may be effective in curbing undue lender pressure is a
perceptive and realistic one. While
appraisal regulation through licensing has improved the quality of
appraisals, market forces have eroded appraiser integrity through various
forms of subtle and not so subtle economic coercion.
Creditors,
lenders or realty agents can pressure appraisers to deliver a
predetermined appraisal value by threatening to withhold future business,
and may search for unscrupulous appraisers to assent to meet predetermined
or required values. In rising
markets, overvaluations do not much matter: when markets stop rising is
when problems surface.
At
the other end, undervaluations are not as obvious or pernicious.
But they do exist and are prevalent in family law matters and often
in condemnation appraisals. When
obvious and intentional, these types of values tend to diminish the
credibility of the profession.
This
is an issue that appraisal organizations can seize upon as one of
legitimate concern to their members, the public, and the financial system.
And they should. Documenting instances of abuses and presenting
these results in a summary form to regulators and legislators is needed.
Before any changes can be effected, clear evidence of the magnitude
of the problem needs to be uncovered.
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