Corruption in Appraisal Business?
Not the most experienced professional on this site, but I’ve been in the industry for 1.5 years. One thing that has surprised me is how appraisals are supposed to be the unbiased, professional opinion of an expert (aka appraiser) but in actuality, I have seen the most sophisticated, large borrowers implicitly and/or explicity pressure an appraiser (even at the largest and most reputable appraisal/brokerage shops) in a way that would be beneficial to them (fighting to get a lower appraised cap rate, lower appraised expense comps, pushing to get more favorable rent and sales comps, etc.).
I say all this to say this…do you not see how the appraisal industry can get in a lot of trouble soon? Considering that now we are going through a choppy market and a period of price discovery - in which we find out many shops overpaid for assets and got appraisers to justify their values. Not saying this is to the extent of the rating agencies’ corruption leading up to the GFC but it feels something like that.
If nothing happened to the rating agencies in the GFC, nothing should happen to the appraisers now
This has and does happen all the time in debt production/mortgage banking during underwriting. You're gonna need actual support for your dogshit initial assumptions at some point right?
As you get more experience you'll start to realize this is all for bullshit compliance reasons.
It is exceedingly rare that an audit, appraisal or credit rating will uncover something that interested parties are unaware of.
Everyone just needs it to get compliance off their asses, then they change all of the assumptions anyway to get to their cases.
I don't think it's something you need to be super worried about; as someone else said, if the ratings agencies were in the clear after '08, appraisers will be fine.
The only Agency or bank that will hold up a deal and care is HUD. HUD only cares because of the press, but usually all that is recommended is Fire and smoke alarm replacement or fixing broken curbs near the parking lot. Anything that HUD could get sued over from personal injury or death.
My time in appraisal, was very short lived so I didn’t do any big deals just commercial from about $250k- $10M. So this perspective may be different then for institutional borrowers, but most of the pressure I got was from the bank.
But to the note of being unbiased. Everyone wants to keep business so if you kill every lenders deal they won’t ever hire you again, so instead of “what is my unbiased opinion of value” it seemed like it was more so a question of “can the market make sense of this at all?”
But also, I only worked in appraisal for like a year before getting out. So what do I know?
Welcome to the real world of commercial real estate finance - believe me you have only seen the tip of the iceberg. The entire premise that the appraisal is 100% unbiased is flawed. USPAP, FIRREA and all the regulatory agencies can say they want appraisers to not be influenced, but at the end of the day the system all but insures that significant influence will be placed on appraisers. At the end of the day, it is good for business and the economy for banks to lend money. If an appraiser kills a deal, it quite literally costs people millions. Kill enough deals and you simply won't get assigned work. On the flip side, there are certain appraisal shops that everyone knows will always hit the necessary value no questions asked. Again, this is common knowledge, but regulatory entities never step in. Why? Because it's very difficult to actually prove fraud and again because everyone knows the game. Take a look at the disciplinary findings levied against appraisers - 98% of them are tied to CE/license renewal issues (punishment is usually a fee and additional courses aka more money).
Also, appraisal is providing an "opinion of value" and opinions can always be shifted through the right argument. Savvy players in this space can always influence an appraised value if they know what they are doing and how to do it. This is nothing new and again is how the game is played. Why do a property owner's tax returns differ from the set up delivered from a broker? Every decision a property owner is making is meant to maximize the owner's return and the property value for that particular use.
Look at the appraisal regulations that have come out of the last two recessions. The appraisers get blamed for what the industry was literally telling them to do, more regulations get passed, and business continues as normal until the next downturn. Rinse and repeat. This is happening in live time on the residential side. Congress just said that all residential appraisers without exception are racist. The solution - an anti-bias course. Yet, nothing changes for the banks who hire the appraisers to make the loans. The industry loves being able to use appraisers as scapegoats when their decisions go bad. Appraisers reflect the market, they don't set it. The banks, borrowers and brokers set the market but they avoid all blame when things go sideways.
Just how it is - until they find a way to remove the appraisal component entirely from the process, there will eventually be some faux outrage and then a return to the status quo.
Adding on to your point - there's a very fine line between a borrower/mortgage broker arguing for different assumptions based on credible data (expense comps, internal rent rolls, off-market sale data, etc.) & being pushy/unethical.
100% agree that an appraisal is an opinion of value. OP, I don't know how much of the report process you're running on your own, but it's not crazy to think that your 1.5-YOE is going to subject to valid critique from time-to-time.
You shall soon learn how we all are interconnected, my young jedi...
Sapiente dolor velit aliquid molestias. Aperiam aliquam itaque fugit dolores quos et. Deserunt aliquid fugiat accusantium veritatis quis. Accusantium eos atque voluptas suscipit. Qui facilis beatae earum autem exercitationem ut. Itaque eius consequatur perspiciatis sit in.
Eos blanditiis ipsum repellendus non reprehenderit sit. Omnis eveniet deleniti aut voluptatem est. Eos unde quasi atque quam. Dolores quod in in. Eveniet modi voluptatem laboriosam beatae sapiente.
Molestiae dignissimos quod voluptas consequatur tenetur. Delectus laborum quia quibusdam ipsam quisquam iure quo nostrum. Cupiditate commodi itaque minima totam sequi est iure.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...