And the understatement of the week goes to… Aubrey Cohen of the Seattle P-I, for his sub-headline gem: “As market slows, buyers may find they paid too much“.
Moss blankets the house’s roof. The siding is rotting off. And mold has spread through the interior.
But the home’s condition is “average,” according to an appraisal.
It’s one clear example of how many appraisers hide problems and affirm inflated prices willingly or under pressure from the mortgage brokers and bankers who give them business — calling into question whether home buyers are getting what they pay for.
“We’re pressured to hit the value every time, every single sale,” said appraiser Richard Hagar, who showed pictures of the mossy house while teaching a class on mortgage fraud earlier this month for 25 appraisers, mortgage brokers and real estate agents.
It’s a problem that is more common as buyers vie to outbid each other in recent go-go markets such as Seattle’s. And increasingly buyers may find in coming months that they paid too much, as slowing appreciation and rising mortgage interest rates force them to sell at a loss.
“I think we’ll see it come to a head here in the next year or so,” said Ralph Birkedahl, manager of the state’s appraisal program. “We may see more foreclosures than we’re seeing now.”
I don’t really understand why the appraisal process works the way it does. Wouldn’t it remove most of the opportunity for corruption like this if the lender was only allowed to work through a neutral third party to hire an appraiser? It could be “appraisal escrow.” The process I’m imagining would go something like this:
- Buyer makes offer on home.
- Buyer submits offer and house details to lender.
- Lender sends house details to appraisal escrow.
- Appraisal escrow agency is not permitted to access any information about pending offer or listing price, etc.
- Appraisal escrow sends house details to appraiser.
- House is appraised in an unbiased fashion, since the appraiser has no prior knowledge of listing price, offer details, or even who the lender is at all.
- Appraisal is sent back to appraisal escrow, who then forwards it to the lender.
So where is the flaw in my logic? Other than the fact that this process would result in yet another layer of fees in the closing process, I don’t see why it wouldn’t work. Since lenders are the problem, a law implementing such a system could dictate that the appraisal escrow service be paid for solely by the lender, with fees not permitted to be (directly) passed on to the buyer. Obviously it isn’t perfect, but it seems like it would mostly eliminate the trouble of appraisers being pressured by the lenders to hit a certain dollar amount.
Of course, the entire conversation about appraisals completely ignores the fact that $470,000 for the “median” home in King County is insane to begin with… But hey, whatever.
(Aubrey Cohen, Seattle P-I, 07.31.2007)