Appraisers still pressured to fudge numbers

Have the real estate valuation shenanigans and inflated home appraisals that characterized the boom years disappeared from the marketplace?

Ask appraisers and many will tell you: It's still business as usual. Attempts at encouraging inflated appraisals continue to be commonplace, though in some cases the techniques have become subtler.

"Absolutely appraisers continue to get pressured" to hit the numbers needed to push transactions to closing, said Bill Garber, government affairs director for the Appraisal Institute, the country's largest professional organization representing appraisers.

"That has not changed yet," added Garber, even though recently signed federal housing legislation toughened appraisal standards and the Federal Reserve's new truth-in-lending rules ban interference, bribes or intimidation designed to influence appraisers' valuations.

Gary Crabtree, principal of Affiliated Appraisers in Bakersfield, Calif., says "it hasn't gone away," and there are even some developments on the horizon that could make things worse. Starting Oct. 1, a new federal foreclosure-relief refinancing program gets under way that will require lenders to write down the value of distressed houses to 90 percent of current market value to enable borrowers to be refinanced.

Some appraisers "could find themselves under pressure to inflate values" on those properties to cut lenders' losses, says Crabtree, even though the federal legislation authorizing the refinancing program specifically prohibits interference.

Sara F. Schwarzentraub, president of Inter-State Appraisal Service of La Mesa, Calif., recalls how one client left a recorded message on her office phone complaining that, "If you didn't know you couldn't hit what was needed, you shouldn't have taken the assignment." The number needed by the caller, a mortgage company employee, was $50,000 to $60,000 higher than current comparable values in the area could support, according to Schwarzentraub.

In Owings, Md., Michael Tsourounis, president of Calvert Appraisal and Realty Services, recounted a recent experience when he visited a mortgage company in his area. Tsourounis inquired about the possibility of doing appraisal work for the lender.

"The office manager asked me directly: 'If I sent you out to appraise a million-dollar home and the comps (comparable values) only came in at $800,000 ... but in your heart you knew it was worth a million dollars, what would you bring it in at?' "

Tsourounis says he told the manager that "the market is full of million-dollar houses selling for $750,000. Why should I be responsible for adding one more foreclosed property to the already growing list?"

"Not surprisingly," he said, he's never heard back from the lender, never received an appraisal assignment. "Was that a form of interference? You bet it was," said Tsourounis. "It was just a little subtler, a little less direct, than it used to be."

The obvious intent here, according to Frank Gregoire, immediate past chairman of the Florida Real Estate Appraisal Board and an appraiser in the St. Petersburg-Tampa area, "is really to find out: Will this guy play ball? Will he be cooperative when we need him?"

Gregoire says appraisers still routinely receive probing e-mails and phone calls from lenders and brokers designed to elicit the same information: Will an appraiser "pre-comp" a property with a sales contract pending at a specific price?

Part of the reason in today's market environment, Gregoire said, "is that things are tough, sales volumes are down and some lenders know that they'll eventually find someone who'll cooperate." That someone is often a newcomer to the appraisal field who badly needs an assignment. "It's not easy for some of them to say no," he said.

Kenneth Harney writes about real estate matters for the Washington Post Writers Group. His e-mail address is kenharney@earthlink.net.