Inflated appraisal value - Posted by Christopher - WA

Posted by Christopher - WA on October 25, 2003 at 01:30:26:

Maybe it was naive of me but my friends houses were all appraising that much higher than were expected so I just thought it was a godsend. The comps were similar houses and similar land but as it turns out they weren’t similarly situated. My seminar was in not going to inspect them myself. (I’ve always been too trusting.)

It’s possible too that the opinion I have now is the one that’s wrong. I’ll get another opinion or two when I’ve finished my improvements - if I’m not bankrupt by then.

Thanks to everyone for their inputs. That’s why I love this site. Some of the details still require experience though.

Inflated appraisal value - Posted by Christopher - WA

Posted by Christopher - WA on October 23, 2003 at 23:26:38:

Hi all, I was told this was off-topic for the cash flow room so I’m reposting it here…

I recently refinanced a rental property and pulled out some equity. Now I find that the appraiser inflated the value by $50,000 by using invalid comps. (Their value is in their land.) Now I can’t sell the place because I’d take a loss on it.

It was the lender’s appraiser. Do I have any recourse as far as damages? This has put me in a difficult financial position on this property. I’m not sure I’m going to be able to maintain a positive cash flow. I’m in the process of making major improvements but the rental market is soft in Seattle and it has neighbors from hell. (Well, from the lower depths anyway…)

What do you think of the idea of leaning on the same appraiser for another appraisal on a different property? I need it to appraise on the high side too. Not by 50k though - just 10k.

I’d sure appreciate any input. Thanks in advance.


Re: Inflated appraisal value - Posted by Robert TX

Posted by Robert TX on October 24, 2003 at 21:43:09:

I can see several problems here:

  1. You don’t have “Privy of Contract” and, based on my understanding of the law (I’m an MAI appraiser not an attorney), he did not work for you, he worked for the lender.

The lender is legally required to hire the appraiser under the FIRREA regulations that cleaned up the S&L mess in the 1980’s. This regulation was put into place because the lenders found out that they could not sue an appraiser who was hired by the borrower.

  1. How can you be in a loss position on a refinance? You didn’t pay more into the property, you took money out of the property. While you might have to bring money to the closing table if you sold the property, you are only replacing the money that you took out of the property.

I can see that you might be overleveraged but the money that you took out reduced the amount of equity that you had in the property.

  1. As far as leaning on the appraiser to inflate a value on another property, recent legislation makes it a federal offense to pressure an appraiser about a value conclusion. I don’t know about you, but none of my friends are interested in a vacation at Club Fed.

And finally, if the appraiser did in fact use the wrong comps in his appraisal and “over-appraised” the property, who held a gun to your head to make you over borrow against the property?

Re: Inflated appraisal value - Posted by Eric - GA

Posted by Eric - GA on October 24, 2003 at 07:25:10:

Chris - I really don’t see any reason you’d have any recourse here. Aren’t you the one that decided how much cash to take out? I’ve never dealt with a bank that MADE ME take out all 80% or 90% or whatever. And, if you’re the one that took it out, shouldn’t you be able to just put it back. It’s not as though this guy’s appraisal affected your purchase of the property…you said this was a refinance. And, I can’t see how the appraisal would affect your cash flow…before you take out a loan, you figure what the payment will be and see if the income will cover it…that should all happen before you even see the appraisal. And, when the bank told you how much they’d let you borrow, you should have known what the appraisal is. They say “Chris, you can borrow $XX,” then you say, “Oh, and $XX is YY% of $ZZZ…man, my house is worth nowhere near $ZZZ.”

The most concerning thing here is in one case, you are describing this appraiser’s actions as criminal, and then talk about having him do another appraisal and “leaning on him” to give you the inflated appraisal you need.

Chris, if it’s wrong in one case, then it is wrong in both. (Of course, in the 2nd case, you’d be conspiring to defraud the bank).

Just the way I see it…

Eric - GA

Re: Inflated appraisal value - Posted by Dimpil

Posted by Dimpil on October 24, 2003 at 05:09:20:

Yes you do. He is supposed to carry E/O insurance (errors and ommisions). I’d sue him.

I would not have him appraise anything of mine. As you may find yourself in the same situation, upside down in the property.

Rule of thumb is no more then 5 acres is used in an appraisal. IF you lived in a rural area where more acreage is common then they would use it but you may get land value cut in half.

I’d also find an appraiser to use for yourself if you are in the investor business. Have him show you how to read an appriasal and if you have a broker or bank loan officer have them show you what are sometimes read flags to the underwriter. That way, you won’t wind up taking a bath on your deals.

Re: Inflated appraisal value - Posted by timeinvestor

Posted by timeinvestor on October 24, 2003 at 18:57:09:

LOL… That’s messed up!

That’s like sueing the landscaper for property value downturn after paying him to dig the big hole in the front yard that dropped your value.

This isn’t the only topic you handle like this, is it?

Re: Inflated appraisal value - Posted by Dimpil

Posted by Dimpil on October 24, 2003 at 16:11:18:


Over valuing an property is criminal. It is fraud. He can sue espically if no other appraiser can even get close to the value.

Now why he’d want this appriaser to do other homes from makes the poster look less then honest and like he knew what was going on, till he realized how it effected his bottom line.

my thoughts exactly (nt) - Posted by Jim (MD)

Posted by Jim (MD) on October 24, 2003 at 10:28:57:


couldn’t agree more -nt- - Posted by rm

Posted by rm on October 24, 2003 at 07:53:52:


Re: Inflated appraisal value - Posted by timeinvestor

Posted by timeinvestor on October 24, 2003 at 18:59:35:

He had to know that the value was pushed when he got his home equity loan. That’s the point here.