DOES IT really matter if the appraisal on the house you buy is accurate? Is a little fudging a big deal?
You bet.
If your valuation is inflated to hit the contract price - a not-uncommon occurrence, according to appraisers themselves - you could end up with a mortgage that's larger than the market resale value of your home. Or if the appraiser ignores some key value-depressing features of the property, you could be stuck with thousands of dollars in unexpected repair bills.
Now the federal government is weighing into this issue with a blunt new message to appraisers and the lenders who hire them: Don't play games with home appraisals. Don't fool with the numbers or turn a blind eye to obvious property defects. If you do, you could face severe financial penalties.
Though the new policy applies only to appraisals made on Federal Housing Administration (FHA) mortgages, the ripple effects could be helpful to homebuyers in general.
Lenders, too
In a regulation issued by Housing and Urban Development Secretary Alphonso Jackson, the government said it will not only hold appraisers themselves legally responsible for bad appraisals, but also will look to the lenders who hired them as well.
If a lender knew or should have known that an appraisal was inaccurate, or that the appraiser intended to inflate the valuation, the lender will be subject to potentially stiff fines and federal administrative sanctions.
If the appraisal was part of a larger effort to defraud the government, the lender, appraiser, and anybody else involved could end up in prison.
Though appraisers were at least partial targets of Jackson's action, the regulation appears to support a get-tough approach on lenders. That's because appraisers say they are frequently pressured by loan officers to inflate their valuations to hit the price on the sales contract.
For example, if the sales contract says $250,000, but the property is worth only $225,000, the loan officer might insist that the appraiser find ways to boost the valuation to close the deal. Appraisers who resist or refuse to cooperate get no more assignments from the mortgage broker or loan officer.
"Lender pressure to `hit the number' is pervasive in all segments of the [home real estate] market," said Donald E. Kelly, vice president of the Appraisal Institute, the largest professional organization representing appraisers. "It is a very serious problem" for consumers, he said, one that could grow in prominence as housing value inflation slows over the coming year.
