Adam Johnston, SRA, is a long term appraisal veteran, and currently a chief appraiser for a national real estate settlement services company (and a longtime fan of Soapbox). On a daily basis, he speaks with appraisers and lenders across the country having observed the rise and fall of the sub-prime lending market. …Jonathan Miller

There has been a lot of recent discussion from the government and the news media regarding the issue of appraisal fraud and improper pressure on appraisers. Although appraisers and fair housing advocacy groups have complained loudly about these issues for the past several years, our concerns were frequently disregarded or dismissed as being over-hyped and insignificant. Many regulatory bodies and lending institutions naively suggested that appraisers should obey the rules and everything would be fine. All the while, these entities ignored a fundamental reality; where there is demand, there will be supply. Accordingly, where demand for appraiser’s to “play ball” became a prevalent practice, there developed an ample supply of greedy appraisers to meet that demand. The presence of inexcusably lax enforcement, instigated by regulatory apathy and insufficient state funding further enabled the problem and emboldened the offenders.

Unfortunately, we now find ourselves in a real estate meltdown of mind-numbing proportions. Although appraisal pressure and fraud was merely one symptom of the greater problem, it was avoidable none-the-less.

Despite all the rhetoric about appraisal fraud, I believe a far more significant problem exists within the appraisal industry. Namely, we are plagued by incompetent appraisers with marginal training and a marginal understanding of basic appraisal procedures and techniques. Shockingly, it has been my experience that many seasoned appraiser’s lack the necessary understanding of USPAP to comply with it’s rules. How does an appraiser certify compliance with a document they fail to read or understand? I believe that appraiser incompetence is a greater threat to mortgage lenders than appraisal fraud. I suspect that most appraisers would not knowingly commit fraud, but yet will engage in incompetent appraisal practice on a routine basis. An incompetent appraiser can unknowingly yield appraisal conclusions and market value opinions that are similarly erroneous and damaging as appraisals that are frequently labeled as fraudulent.

In conclusion, I believe that:

* appraiser incompetence is significantly more dangerous and prevalent than appraisal fraud.
* Secondly, I believe that appraiser incompetence is far more difficult and costly to detect than appraisal fraud.
* Lastly, I believe that our current system of mentoring, licensure, continuing education, appraisal review and enforcement is woefully inadequate and is built for marginal success.