Tom, I just don't know where to start.
I am not suggesting I am an expert in real estate sales transactions, but I have owned businesses, have dealt with the professionals involved, from realtors to appraisers to the bank personnel and have investigated and prosecuted all sorts of real estate scams from the apartment conversions to condos scams of the 80s through the various schemes to get loans to buy, buy, buy in the last decade of the 90s and first four to five years of this century.
You say that if a property appraises at 100K....
You must know that, when a lending institution is involved in making a loan for real property, they won't make the loan unless the appraisal indicates the property is worth at least as much as the money they are loaning at a minimum.
You also must know that the "bank" sends an appraiser out to look at the property and provide an appraisal. The "bank" selects the appraiser and, generally, uses the same one or same firm time after time.
Now, again, consider this. If this appraiser routinely provides appraisals which are less than the money to be loaned resulting in a denial of the credit to the buyer, what would happen?
The "bank" gets a new appraiser. Why? Because the bank is there to loan money and if it doesn't, it has a problem.
Haven't you noticed that (1) realtors are rarely worried about the appraisal, (2) the appraisers are ALWAYS given the sales price of the property and (3) in ALMOST every case, the appraisal comes in at just a bit more than the sales price?
Could it be that the appraisers, except in some rare, egregious case, know their bread and butter is connected to insuring they don't kill the deal?
I have talked with and taken sworn testimony from many lenders, appraisers and realtors and all of them confirm the above statements-that no one wants to kill the deal as long as it is not so lop-sided that the "bank" will be unable to recoup its funds.
I actually had a case in which the appraiser admitted he never got out of his car and couldn't see most of the property he appraised. In a case I handled, an appraiser changed his appraisal upward (he was the rare case of one who didn't know the selling price) when requested to by the buyer (a governmental agency who was trying to justify the high price it was paying another elected official for the property).
I sit here and read post after post about the corruption in law enforcement, the crooked cops, the crooked government, and often think, "You really ain't seen nothing till you look at the way businesses operate."
If businesses were subject to the same scrutiny and open records laws that the government agencies are, you'd be truly amazed.
So, the "bottom line" is that if I have a property that I need 100k in my pocket for, I can easily get an appraisal for 106k to cover the commission.
As a prosecutor, I once needed an honest appraiser. The case dealt with the value of a piece of property and I went through several who refused to appraise it unless I revealed what the sales price had been.
How do they manipulate the appraisals. First of all, they only look at the outside of the property, the area, the comps (sales and values of similar properties in the areas) and, maybe, public records about the property.
In one case involving a piece of undeveloped property, I caught the appraiser justifying the very high appraisal by using as the comps, sales of fully developed lots, with houses in gated communities. That this property was in a flood plain and could not be built upon did not discourage him from "comparing" this lot to those multi-hundreds of thousand dollar homes.
As the introductory song on "Monk" says, "It's a jungle out there...." If one doesn't watch out, he or she can be cheated so easily and so smoothly that the average person never knows what hit them-until they decide to sell the property later.
Now to be fair, I am talking about the TampaBay area. Other areas and other states my have some safeguards we don't have.
If I were a buyer, I would engage my own appraiser, tell him that I wanted an appraisal using true comparable properties and without him knowing the sales price. And, I have done that in my own purchases.
Again, to be fair, I have not been actively involved in this area for some 18 months, just after the "bubble" burst, so it MAY be better for buyers now. Certainly in my area it is truly a buyer's market.
But relying with my wallet on a realtor's or appraiser's integrity ain't gonna happen to me. I may deal with them, but I try to always watch my back and look carefully over their shoulder.
Bob
