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| Inflated
appraisals causing problems |
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Homeowners have been in
the midst of a troubled market as of lately. The housing
market is on the decline, as there is a surplus of un-bought
homes and prices are being slashed by the day. Now there
is another problem homeowners must face. This problem
is inflated appraisals. If a home is appraised for a value
that is too high for what it is really worth, a homeowner
could have trouble selling it or run into problems with
refinancing. The article, “New headache for homeowners:
inflated appraisals,” by James R. Hagerty and Ruth
Simon in the July 22-23, 2006 issue of The Wall Street
Journal, outlines what is going on.
“Critics inside and outside the appraisal business
have long warned that many appraisals are unrealistically
high. That’s partly because generous appraisals
help loan officers and mortgage
brokers, who often choose the appraiser, complete
more deals. If a home is appraised at less than the buyer
offered, the deal is likely to fall through.”
Inflated appraisals didn’t matter much when home
prices were rising at double digit rates, since market
values would quickly catch up. Now, however, prices are
leveling off in many places and falling in some. Some
homeowners are finding that the market value is below
what past appraisals led them to believe,” according
to the article.
So, as this shows, inflated appraisals can lead to much
more than just a bigger number, they can cause homeowners
to lose out on a lot of money in the long run. There is
not much someone can do right now if they received an
inflated appraisal when they first bought the house. They
are just going to think their home is worth more than
it is until they try to use the equity, sell or refinance;
then they will find out that there home is not worth as
much they were originally appraised for.
“The appraisal system has a built in conflict of
interest. Appraisers often are hired by loan
officers or mortgage
brokers, whose compensation depends on how many loans
go through. Appraisers, dependent on loan officers for
their livelihoods, say they often feel pressure to come
up with a number that will allow a home purchase or refinancing
to proceed. Even when all parties want an honest appraisal,
that can be hard to achieve. In making their value estimates,
appraisers rely heavily on ‘comps,’ or prices
paid recently for similar homes nearby. But those prices
may be misleading. For instance, builders of new homes
sometimes include in the sale prices such items as landscaping
or contributions toward loan fees or settlement costs.
Such ‘concessions’ are rarely broken out in
the sale price listed in public records, though. So the
resulting inflated price can become a misleading ‘comp’
for nearby homes.” |
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