Resist Lender Pressure

Ethical appraisers are needed at a time when banks are pushing for lower reported values.

May 1, 2009

It seems that appraisers just can’t win. During the last real estate boom, mortgage lenders complained that appraised values were too low and didn’t keep pace with the rapidly rising values that were the basis of their loan originations. Now those same lenders are criticizing appraisers for valuing properties too high.

Sounds terrible, but it’s true. Even though it’s illegal, lender pressure exists in good markets and in bad. Because of the vast number of problem loans on their books, some lenders want appraisers to value troubled assets at unreasonably low levels in order to serve their agendas of "dumping" troubled assets at fire-sale prices. In addition, many banks are taking an ultraconservative approach in lending to buyers—fearful of making loans for more than a home is worth and ending up with even more problem loans on their hands. While it’s understandable that lenders want to stem foreclosures, faulty appraisals shouldn’t be a part of their plan.

When faced with demands to either "make the number" or disregard material information, most appraisers know they should turn down the assignment or value the property at the appropriate level, despite the lender’s "needs." Unfortunately, the potential outcome for telling the truth is lost business.

In a slower market, where there’s less business to go around, appraisers may be hungry enough to comply with a lender’s demands just to pay the bills. But if they do succumb to the pressure, they’re in clear violation of the Uniform Standards of Professional Appraisal Practice, which is set by the Appraisal Foundation in Washington, D.C. They’ll also be subject to penalties from state regulators and suffer from a tarnished reputation in a field where referrals can make or break a career.

Such consequences come with good reason. Appraisers should not dictate the market; they should report it. An appraisal does not involve picking an arbitrary number or using any available comps that happen to be handy or suit a lender’s or buyer’s purposes. Rather, an appraiser uses analysis of hard facts and verifiable market data to develop a realistic value that’s supported by the actual market and participants’ actions in that marketplace.

Unlike lenders, who have a vested interest in whether a transaction closes, appraisers are—or should be—disinterested parties who have no concern about whether a deal falls through or is delayed. Real estate practitioners may sometimes be caught in conflicts over value between lenders and appraisers, and they and their clients may suffer. That’s why it’s essential for all real estate practitioners to recognize that lender pressure exists. It’s also why I call on all real estate salespeople to rely on market valuations made by ethical, well-trained appraisers with local market experience who will resist any lender pressure and provide realistic, market-oriented values. When you have the opportunity to choose or recommend an appraiser, do your homework first by checking state licensing boards or consumer protection agencies and asking trusted colleagues for referrals.

Failing to rely upon knowledgeable appraisers and allowing lender pressure to dictate "value" was part of the cause of the subprime mortgage debacle. Now we’re paying the price for that failure. Hopefully we’ve learned from our mistakes, and next time we’ll all insist on property values based on data rather than transaction expedience or lenders’ agendas. If not, a few years from now we may once again be dealing with the fallout.

Writer Joe Sabella, CRS®, e-PRO®, owns Imperial Appraisals LLC in Fairfield, Conn. He has 23 years of diverse real estate experience and has held chief appraiser positions at several large banking institutions. He can be reached at