Saturday, March 25, 2023 | The Latest Buzz for the Appraisal Industry

The Similarities Between 2007 and Today

During the 2007-10 mortgage default meltdown, appraisals were a target of complaints and allegations by lenders, the GSEs, some state appraisal boards, and a few unscrupulous entrepreneurs.

Many of the complaints and allegations about appraisals related to not addressing the changes happening in the market as the meltdown began to occur, calling the market stable when prices were starting to decline. Many allegations related to appraisals that used inappropriate comparable sales that were used to “make” a deal work. Some related to not addressing and analyzing a recent prior sale for a property flip, and not catching groups of sales that were parts of larger-scale schemes of price manipulation. Others were related to comparing remodeled “comparable” sales to a subject property in its original condition and calling the condition the same.

Many issues related to an appraiser simply taking on too much work and not adequately researching their sales data, and inadvertently using manipulated sales data or employing sloppy cloning of reports. This left the appraiser wide-open to being a target of “a series of errors” that affected the credibility of the valuation results.

Between 2002-2005 in many markets, the real estate market was scorching, much like it is today. Prices were escalating quickly, and buyers were purchasing in a frenzy for fear of being left behind and not being able to get their foot on the property ladder.

Although 2020-21 is not the same as the run-up before the housing crash, there are some similarities with what appraiser’s face that bears addressing and reiterating.

  1. Appraisers are overworked and are often taking on more than they can handle.
  2. Just because appraisers are busy does not mean anyone can relax their due diligence.
  3. If prices are rising, calling the market stable is no different than calling it stable when it was declining.
  4. Appraisers cannot ignore good solid market data because it does not support a sales price, much like the appraisals that ignored remodeling compared to an original condition property.
  5. No matter how much pressure is placed upon appraisers, our job is to analyze the market and use the most appropriate comparable sales, not the ones that “make” the deal.

Each of these points is reminiscent of the previous market run-up in terms of what the appraiser’s face. In the run-up to the 2008 market crash, appraisers were overworked and took on more than they reasonably could handle. That leads to many assignments being completed without due diligence and often getting sloppy with the work product.

When the market started to correct, many did not see, or willfully ignored, the market correcting and did not address declining trends. Some appraisers are reticent to address increasing trends now. This is no different than ignoring declining trends.

As appraisers, we faced tremendous pressure from buyers, sellers, real estate agents, and loan officers during the previous run-up. We are seeing that as a profession again. Almost daily, there is some story on social media about being “turned in” to the state by a disgruntled agent, buyer, or seller for appraising a property below the contract price. The amount of disparaging on Facebook related to appraisers in real estate circles is truly astonishing. If the deal is sullied at all by an appraisal that does not live up to a buyer and seller’s wildest hopes and dreams, then the appraiser is fair game for a state board complaint. Is this any different than last time?

How do we combat this? As enticing as it is to take on more work than reasonable, because of the fear of much of it being gone tomorrow (and this has happened, and will again), if the needs of the client come first related to having solid analysis and reporting of the factual data, then appraisers remain valuable.

Appraisers’ jobs relate to analyzing the market and reporting what we have analyzed in a manner that is factual and not misleading. We provide a service that helps clients make informed decisions on how to proceed. Appraisers’ jobs are not to facilitate mortgage lending. It is not our job to kill or make deals. We analyze and report.

Currently, there is an unprecedented amount of work available and clients are begging appraisers to take the work. However, when the market turns and clients are looking for someone to blame for loans that have gone bad, the appraiser will once again be standing with a target on their back, ripe for the taking if due diligence is not employed. If appraisers do their jobs correctly with care and credibility, then there will always be work. The volume of work may not continue, but there will be work for the appraiser who provides their service in a competent, independent, impartial, and objective manner. Just the way it should be done.