Have inflated home appraisals helped fuel the current foreclosure crisis - and effectively helped scam artists rip off lenders? Property appraisers say yes.

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With Souith Florida housing prices softening and sales volumes sagging, real estate appraisers say pressure on them to inflate values has soared.

Syndicated columnist Kenneth Harney, whose weekly writings on the housing market appear in the Miami Herald, says that a new survey of the national appraisal industry found that 90 percent of appraisers report that a Florida mortgage broker, realty agent, lender and even the consumer often will pressure them to raise property valuations to enable deals to go through.

That percentage is up sharply from 2003, when 55 percent of home appraisers reported attempts to influence their findings and 45 percent reported “never.” Now the latter category is down to just 10 percent.

“I call it a perfect storm scenario,” said Alan Hummel, Senior V.P. of Forsythe Appraisals of St. Paul, Minn., one of the largest property valuation firms in the country. Forsythe was a co-sponsor of the new research.

“You’ve got a situation where sales are down, so everybody in the deal needs it to go through” at the contract price - the mortgage broker, the real estate agent, the Florida mortgage originator, and even individual sellers.

Loan brokers are now routinely “dialing for values,” Hummel said. “They call up appraisers and say, we’ve got this sale at $335,000 at such and such an address. Can you get to that number?” If an appraiser answers yes, he or she gets the assignment. If not, the appraiser is bypassed.

Worse yet, said Hummel, when an appraiser comes back with a fair market value estimate that is lower than the sales contract price, the appraiser may not get paid for the work, and frequently is blackballed by the Florida home mortgage broker or real estate agent.

The survey found that 75 percent of appraisers reported “negative ramifications” if they refused to come in with a higher valuation. Sixty-eight percent said they lost the client - typically a mortgage broker or lender - following their refusal to fudge the numbers, and 45 percent reported not receiving payment.

Hummel said realty agents may retaliate against non-cooperative appraisers by telling local mortgage brokers or lenders, “Look, I’m not sending any more (home purchaser) clients to you if you continue to use that appraiser.”

Though mortgage brokers were ranked the most common source of pressure - 71 percent of appraisers said brokers had sought to interfere with the home appraisals - real estate agents came in a close second at 56 percent.

Both numbers were up significantly from where they were in the 2003 survey. Also identified as sources of pressure were consumers - typically home sellers (35 percent), mortgage lenders (33 percent) and home appraisal management companies (25 percent).

Mortgage brokers represent the biggest problem, said Hummel, because they are only slightly regulated at the state level, often wield the power to bestow or withhold appraisal assignments at the application stage, and ultimately “if the deal goes south two years from now, they’re long gone.”

On the other hand, the Florida mortgage lender, including both banks and mortgage banking companies, “has more skin in the game” - they are more intensely regulated and can be forced by bond market investors to buy back defaulted mortgages that have inflated appraisals.

Hummel emphasized that the responsibility for the problem of pressure rests not only with loan brokers, real estate agents and home loan lenders, but with the appraisal industry itself. Many newcomers with inadequate training and little experience flocked into the field in recent years - drawn by high housing sales volumes and constantly escalating prices.

Now that sales are down, said Hummel, “you’ve got more appraisers out there who think, gee, if I don’t (cooperate), maybe I’m not going to get any more work.” The vast majority of appraisers resist the pressure they receive - from any source - and simply refuse to submit valuations they know to be inflated, he added.

Bottom line:

Congress needs to enact legislation making pressuring appraisers to distort their valuations a federal offense, subject to criminal penalties. And state regulators need to step up enforcement against fraudulent appraisals, pressure tactics and appraisers who give in.

Once you decide on the best Florida home mortgage, and then track down the house of your dreams, it’s always a good idea to have that piece of property appraised.

In a cooling real estate market, however, this can be a challenge. After all, how do you value a specific residence when local home sales are down 20 percent to 40 percent from last year, inventories of unsold homes have ballooned by 200 percent or more, and all the trend lines are pointing negative?

Difficulty facing appraisers

It can be tough. Traditionally, real estate appraisers focused heavily on sales of similar properties - ‘comparables‘ that closed in recent months - to make their valuations. But that doesn’t work well in markets that had been superheated are now stalled out or falling.

It also doesn’t work well in markets where recent closed sales prices often were inflated by incentives provided by sellers to buyers - contributions to closing costs, for example, ‘buydowns’ of Florida mortgage interest rates and other sweeteners not always on the public record.

“It’s getting pretty dicey out there,” said John Bredemeyer, a residential appraiser and spokesman for the Chicago-based Appraisal Institute, the largest professional group for the industry. “Just looking at historical data can be perilous. You’ve got to open up the window and see what’s really happening now. You’ve got to answer the question: `Where are we in this cycle?’ And you’ve got to factor that into your valuation.”

Some Florida mortgage loan lenders and relocation companies now expect appraisers to examine a wide range of data they never emphasized during the boom years. Gary Crabtree, owner of Affiliated Appraisers, based in Bakersfield, Calif., says that besides the traditional “recent comps,” he now factors in at least eight other types of data in reaching the current valuation of a house:

* Pending sales under contract.
* Current listing prices of houses in the area.
* Local Florida housing market market supply and demand.
* Length of time unsold on the market for current listings.
* Price reductions or increases on current listings.
* Notices of defaults and notices of trustee’s sales.
* Known concessions provided to buyers to facilitate sales.
* Personal interviews with realty agents on what they’re experiencing with sellers and buyers.

Even some of these factors can be tricky, though.

For example, Crabtree said, some realty agents increasingly are playing what he calls “the re-list game.” Because multiple listing service data reveals how long each property has been on the market, agents with unsold houses now sometimes cancel the listing - take the property off the market for a short period of time - and then list it again with a different price and MLS code.

“Now the house no longer looks like it’s been sitting dead in the water for months on end,” said Crabtree. ‘”It looks like a new listing,” and it’s reported in that misleading way in the data that appraisers use to gauge the overall market.

It’s important that an appraisal does, in fact, match the purchase price for your new house. Therfore, carefully consider the professional with whom you’re aligned and realize the challenges he or she faces.