Our appraisal firm tends to stay away from wholesale lending other than clients who pay their invoices and do not pressure us. Mortgage brokers tend to hook in with specific appraisal firms that make the deal, especially on cash out refi’s. We are not one of those firms. As a result, lenders tend to gravitate to us to perform desk and field reviews.

Here’s a typical scenario that happened today:

We are asked to review a report for a national lender who like many lenders, has better control over the quality of their retail channel appraisers than their wholesale channel appraisers. High volume mortgage brokers are often able to muscle “their appraiser” in by flooding the lender with high loan volume for short bursts.

The report we reviewed was a condo unit and relevant sales in the building were excluded and adjustments for amenities such as expansive views of the comparables were ignored. The appraiser gridded a listing as the first comparable that had been on the market for 6 months with no activity and yet the estimated market value was much higher than this sale. The other sales used were not comparable. The sales used had significantly superior views or locations and they were as much as 50% larger with token adjustments for square footage differences.

The result?

The estimated market value was overstated by about $2,000,000! Now I’d like to point out that this lender gives us a hard time about not measuring up to their turn time standards. Guess what? This appraisal firm can get the reports in faster than we can.

A while back, I reviewed an appraisal by this same firm that was about $9,000,000 over valued. The report had been shopped around to several lenders.

Lenders and appraisers that see this type of activity have little recourse in our state. We have to disclose our name in public and therefore would be subject to retaliation.

When is Congress, the secondary mortgage market and financial institutions going to figure this out? The end is near and good appraisers will be ready.