This morning's Rocky featured a big article about a stringent effort by the new chief of the Colorado Division of Real Estate, Erin Toll, to yank the licenses and prosecute, if necessary, of appraisers who phony up the value when submitting the appraisal to lenders.  She says she's currently investigating one where the appraiser "has inflated more than a dozen appraisals."  One case she cites gave a value $100,000 over what it should have been.

And then we ask why Colorado has the highest foreclosure rate in the nation?

There are more causes than the article would suggest, but certainly overinflated appraisals is one.

Earlier this year my dependable Tennessee lender notified me that she had stopped using the appraiser I had suggested she use, and couldn't tell me why.  I have to wonder this morning, did my appraiser inflate the value of one of my client's homes?

The problem is that if other appraisers (and real estate agents) use one of these overinflated homes as a comparable in trying to establish market value, that value will also be inflated, causing buyers to pay a hyperinflated price for the home they're buying..  Then when the house needs to be appraised for refinancing, or value needs to be established when a homeowner needs to sell, the danger is they'll instantly lose whatever equity they thought they had.

Overinflated value caused by greedy appraisers causes a domino effect.  Apparently Ms. Toll thinks that there's more of a problem in Colorado than meets the eye.  Stay tuned for developments on this newly emerging issue.