Bogus appraisals : Rooftop Views

Rooftop Views

Bogus appraisals

There continues to be publicity about property appraisals which bear no relation to the reality of the surrounding neighborhood.

RISMedia recently had an example of a manufactured home in California which appraised at purchase for almost $60,000 higher than the surrounding homes. Now in foreclosure, the sales price was less than half of the original appraisal.

What gives?

Although we are not appraisers, we have been in the business for over 30 years. Our perception is that most people think an appraisal at time of purchase is just that - an appraisal of the home on the open market. We believe it is, instead, an indication of current value, i.e., can the appraiser justify the loan amount given the comparables in the area. That is an entirely different thing.

Remember, at least in Colorado, the appraiser is hired by the lending institution - not the buyer and certainly not the seller. So his client is the BANK. The appraiser wants to make sure the bank is making a good loan. For the past several years here the appraisal has come in at - or very slightly above - the sales price. So even if you know the value of the home is actually several thousand dollars more than what you paid for it, the appraiser is telling the bank that they are making a good loan. Thus the appraised value is at sales price. It is also a way for some appraisers - not all certainly - to CYA. Rather than give an inflated value they appraise it at sales price.

Where bogus appraisals come in is when the appraiser confirms a value WAY above market. That doesn't happen often around here. Even though we are the foreclosure capital of the world right now, bogus appraisals are not the villains. Appraisers in Colorado are licensed, bonded and carry insurance just as real estate brokers do. It's not worth it to most of them to bring in a bogus appraisal.

The bottom line is, if you think your appraisal is out of line, get another one. The few hundred extra dollars you spend might save you a lot of grief in the future.