APPRAISERS CRITICIZED FOR LOW VALUES
Many have rightfully blamed, in substantial part, appraisers for the meltdown of the real estate market. As alleged in many lawsuits, appraisers inflated values in order to ensure that deals would close escrow and so that the appraisers would stay in the “good graces” of the mortgage brokers who selected the appraisers. Many mortgage brokers only got paid if the loans closed. So, the brokers and appraisers were aligned to inflate values to support the purchase price, and to close the deal and make their fees. (This in now way suggests that all appraisers or mortgage brokers succumbed to the economic incentives. There are certainly many ethical, honest and forthright individuals working in this industry.)
Now that the real estate market has tanked, lenders and others are on “high alert” for inflated appraisals. Oddly enough, as a result, appraisers are now being criticized for valuing properties too low. Appraisers who are conservative are now accused of killing transactions (refinancing and sales) by finding the value at less than the amount needed to support the loan to value ratio.
Borrowers and sellers, and the real estate market in general, are harmed by unreasonably and unjustifiably low valuations by worried appraisers. While we are unaware of any lawsuit against an appraiser for undervaluing a property, such a claim is possible under the right circumstances. An appraiser can be held legally liable for materially failing to follow industry standards in such a way as to make a substantial mistake in the value of the property.