Appraiser Pressure

What is Appraiser Pressure?

Appraiser pressure refers to the unethical practice of influencing an appraiser to determine a property valuation that does not reflect the true market value. This manipulation can come from various stakeholders, including lenders, real estate agents, homeowners, or buyers. The goal is often to meet predetermined financial objectives:

For lenders: To approve larger loans.
For sellers: To boost sale prices.
For buyers: To ensure loan approvals.
For real estate agents: To quicken sales or increase commissions.

Detailed Definition

Appraiser pressure is unethical and fraudulent. It can lead to inflated or deflated property values, which can then cause significant market distortions, financial losses, and other long-term repercussions. Typical forms of pressure include threats to withhold future business, promises of repeat business, manipulation through aggressive communication, or coercion tactics.

Examples of Appraiser Pressure

Lender Influence: A mortgage lender threatens to remove an appraiser from their panel if the appraiser does not meet a target valuation necessary for a loan approval.
Real Estate Agent Influence: A real estate agent offers to refer more work to an appraiser if they artificially increase the property value to hit a higher sale price.
Homeowner Influence: The homeowner insists the appraiser increase the value to ensure they can take out a home equity loan and threatens to publicly defame the appraiser if the higher value is not provided.
Buyer Influence: A buyer asks an appraiser to lower the value so as to negotiate a better deal and indicates they will recommend the appraiser to other potential buyers if the request is fulfilled.

Frequently Asked Questions (FAQs)

Why is appraiser pressure unethical? Appraiser pressure is unethical because it manipulates the fundamental fairness and accuracy of real estate transactions, potentially causing financial harm, market distortions, and legal consequences.
What are the consequences of appraiser pressure? Consequences include potential market crashes due to inflated property values, legal actions against involved parties, and loss of professional licenses for appraisers.
Who can exert appraiser pressure? Anyone with a vested interest in the property’s value, including lenders, real estate agents, sellers, buyers, developers, and even mortgage brokers.
How can appraisers protect themselves from pressure? Appraisers can avoid unethical influences by adhering to strict professional standards, documenting all communications, and refusing to comply with unethical or illegal requests.
What legal recourse exists against appraiser pressure? Appraisers can report unethical behavior to professional standards boards, licensing authorities, and even law enforcement agencies. Professional appraiser associations often provide support and protection programs.

Real Estate Appraisal: The process of developing an opinion of the value of real property.
Mortgage Fraud: Any misrepresentation, misstatement, or omission of information relied upon by the lender to fund, purchase, or insure a loan.
Fair Market Value (FMV): The estimated price that a property would sell for on the open market.
Ethics in Real Estate: Standards and rules governing the behavior of real estate professionals to ensure honesty, integrity, and transparency in all transactions.

Online Resources

References

Freddie Mac. “Understanding the Appraisal.”
The Appraisal Foundation. “Advisory Opinions: Compliance & Ethics.”
Federal Housing Finance Agency (FHFA). “Mortgage Market Overview.”
National Association of Realtors (NAR). “Code of Ethics and Standards of Practice.”

Suggested Books for Further Studies

“Real Estate Appraisal: From the Inside Out” by Russell W. Kazmierczak.
“Appraising Residential Properties” by Appraisal Institute.
“The Appraisal of Real Estate” by Appraisal Institute.
“Valuing a Business, 5th Edition: The Analysis and Appraisal of Closely Held Companies” by Shannon P. Pratt.
“Real Estate Valuation and Strategy: A Guide for Family Offices and Their Advisors” by Nigel E. Wilson.

Real Estate Basics: Appraiser Pressure Fundamentals Quiz

### Is it ethical for a lender to suggest a specific value to an appraiser in exchange for future business? - [ ] Yes, if they really need the value to meet loan criteria. - [x] No, this represents appraiser pressure and is unethical. - [ ] It depends on the market conditions. - [ ] Yes, if the appraiser agrees to the terms. > **Explanation:** Suggesting a specific value in exchange for future business constitutes appraiser pressure and is unethical. ### Who can be affected by appraiser pressure? - [x] Both the housing market and individual property owners - [ ] Only the appraisers themselves - [ ] Only the lenders and real estate agents - [ ] None of these > **Explanation:** Appraiser pressure can distort property values, potentially harming the wider housing market and individual property owners by leading to financial losses and market instability. ### What should an appraiser do when faced with unethical pressure? - [x] Document the interaction and report to a professional standards board - [ ] Comply if it means securing more business - [ ] Ignore and continue with the requested appraisal - [ ] Counter the request with a higher value demand > **Explanation:** An appraiser should document the interaction and report the unethical pressure to a professional standards board to maintain integrity and comply with ethical standards. ### What is a common consequence of appraiser pressure? - [ ] Immediate profitability for all involved parties - [x] Market instability and potential legal actions - [ ] Increased trust in real estate transactions - [ ] Higher valuation accuracy in property appraisals > **Explanation:** Appraiser pressure can result in market instability and potential legal actions due to the artificial inflation or deflation of property values. ### Who can legally challenge appraiser pressure? - [ ] Only real estate agents - [ ] Only buyers of the property - [x] Appraisers, professional standards boards, and relevant authorities - [ ] Interested parties with no cognitive knowledge > **Explanation:** Appraisers, professional standards boards, and relevant authorities can legally challenge appraiser pressure, ensuring ethical compliance in real estate transactions. ### What forms can appraiser pressure take? - [x] Threats to withhold future business, promises of repeat work, and aggressive communication - [ ] Equitable agreements and market-driven evaluations - [ ] Independent appraisals and competition-based discussions - [ ] Informal appraiser meet-ups and industry roundtables > **Explanation:** Forms of appraiser pressure include threats to withhold future business, promises for repeat work, and aggressive communication aimed at manipulating property values. ### Which organization is responsible for setting appraisal standards in the U.S.? - [ ] National Mortgage Association - [x] The Appraisal Foundation - [ ] Federal Housing Finance Agency - [ ] National Association of Realtors > **Explanation:** The Appraisal Foundation is responsible for setting appraisal standards in the U.S., ensuring the integrity and accuracy of property valuations. ### Should data and documentation for the appraisal process be transparent and open? - [ ] No, privacy and secrecy yield more accurate appraisals. - [ ] Only if the client demands it specifically. - [ ] It depends on the state laws. - [x] Yes, transparency ensures an unbiased and accurate appraisal process. > **Explanation:** Transparency ensures an unbiased and accurate appraisal process by making appraisal data and documentation available for scrutiny, reducing the risk of unethical practices. ### What is a primary goal of appraiser pressure exerted by a seller? - [ ] To ensure the buyer gets a lower price - [x] To raise the sale price of the property - [ ] To accelerate closing times - [ ] To ensure fairness for both parties > **Explanation:** Sellers exert appraiser pressure to raise the sale price of the property to maximize their profit margins. ### Why is adherence to Uniform Standards of Professional Appraisal Practice (USPAP) important for appraisers? - [ ] To counter market competition and low-price evaluations. - [ ] To win more appraisal assignments via more assessments. - [x] To ensure ethical compliance and maintain professional integrity. - [ ] To secure buyers’ loan approvals with high values. > **Explanation:** Adherence to USPAP ensures ethical compliance and maintains professional integrity, helping appraisers provide fair and unbiased property valuations.