Technology TransactionsAppraisals and a Tale of Two States
The appraisal process is supposed to represent the independent valuation of properties by unbiased professionals, people paid for their opinion -- whether their opinion is higher or lower than clients might like.
This idea that appraisers should stick to the truth does not necessarily make them the most popular folks in town. Independent views are great in theory, but sellers often would like to see higher estimates while buyers might prefer more conservative valuations. Loan officers, also, are among those who frequently prefer steeper valuations because elevated prices make it easy to reach loan-to-value ratios.
Because sales, commissions and fees are dependent on solid valuations, appraisers are often pressured to assure that a given value is reached. If pricing targets are not met, say appraisers, lenders may elect to go elsewhere for appraisal services. Not subtle, but perhaps effective.
Unfortunately, when prices rise to levels not justified by the marketplace we then have lenders making loans which are larger and riskier than they should be -- what I call overlending. Buyers, in turn, face inflated monthly mortgage payments and thus a greater potential for poverty, foreclosure and bankruptcy.
The Attorney General of Ohio, Marc Dann, has now announced suits against 10 companies alleging "undue influence on an appraiser." The complaints allege that the accused companies had violated state laws by "knowingly compensating, instructing, inducing, coercing, or intimidating appraisers for the purpose of improperly influencing the independent process."
"Allegations" are just that, not proof of anything -- just ask a few former Duke University athletes. That said, you can imagine a lot of interested parties nationwide will be closely watching the Ohio cases -- and that a lot of appraisers will now be taking contemporaneous notes when pressured by lenders, brokers and consumers to come up with the "right" price.
Meanwhile, when we last left off with appraisals, the state of Arizona was threatening to sue Zillow.com unless the online site got an appraiser"s license.
Zillow provides estimated home values and says that such estimates are not appraisals. But regardless of what Zillow says, can their numbers be construed as being "appraisals" under state rules in Arizona?
Arizona has a remarkably-broad definition of the term appraisal. According to Arizona, an appraisal is defined as "a statement independently and impartially prepared by an individual setting forth an opinion as to the market value of real property as of a specific date and supported by the presentation and analysis of relevant market information."
Now, however, Arizona has decided not to contest this matter in court. The solution? Change the law.
Senate Bill 1291 says you don"t need to be a licensed appraiser if you"re "a person who produces a statement that is provided to any other person concerning the estimated value of real property through an internet website, automated valuation or other software program or other means of comparative market analysis and who discloses that the estimate is not an appraisal."
Sounds a lot like Zillow, doesn"t it?
If I was the author of such language, I would have said the disclosure must be in large type and in a prominent, highly-visible location on the home page and elsewhere. I would also have said that to avoid being tagged as "appraisals" value estimates must be available to all without a fee or any actual or perceived requirement to disclose an individual"s name or contact information.
As of this writing, SB 1291 has passed the Arizona House and Senate. The bill has been sent to Arizona Governor Janet Napolitano for her signature.
An important point about the Arizona dispute is to understand that state regulators must follow the law. The Appraisal Board had no choice but to confront Zillow and it did. The inevitable and appropriate result was to change a law that does not work, rather than try to defend the indefensible in court. It would not be surprising to see other states now begin to revise outdated professional definitions.
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