State of appraisals

While celebrating its 75th anniversary, the Appraisal Institute is working to solve serious problems in the industry and explain how it works.

One federal bill the trade organization supports would make it illegal for a lender to pressure an appraiser to report a property is worth a certain amount.

Andrew Cuomo, New York attorney general, has filed suit against an appraisal company for apparently allowing a major mortgage lender to pressure it into inflating appraised home values.

The institute, with 22,000 members around the world, provides education to real estate appraisers and advocates for the profession. It provides credentials that show an appraiser is educated and experienced.

Appraiser independence is critical for home buyers, said Ron De Vries, immediate past president of the Chicago chapter.

There are examples of buyers who thought they were borrowing 90 percent of their home's value when the mortgages were really more than the homes were worth.

"What happens if I need to sell that home, and I'm upside-down?" said De Vries, a member of the institute's national board.

Lender pressure on appraisers is nothing new, he said.

"But it's escalated tremendously over the last few years. Now that the market has stalled, it's attracting more attention," he said.

Rapid increases in home values helped to mitigate the damage and cover up a lot of the problems when people overpaid for property, De Vries said.

"Some appraisers have caved to the pressure," he said. "They may have a client who is a substantial part of their work."

De Vries, vice president of Appraisal Research Counselors -- a Chicago appraisal company -- said he would like to believe that members of the Appraisal Institute are held to a higher standard.

"I'd like to say that none of our people do that. That wouldn't be true."

He admitted that subtle pressures probably cannot be regulated away.

"But we will try to control it a little bit better and take away some of the obvious problems," De Vries said.

While a home buyer cannot request a certain appraiser, he or she can ask for someone who has earned a designation from a professional organization like the Appraisal Institute.

When an appraiser joins a group like the institute, he is showing this is a career for him and not just a job, said Jim Blaydes of LaSalle County, current president of the Chicago chapter.

Blaydes is advocating mandatory licensing for appraisers in Illinois. Currently, a licensed appraiser is required for many mortgages, but not for all real estate sales, he said.

Appraisal is an art mixed with some science, De Vries said.

"An appraisal is not a fact," he said. "I cannot say this property is worth $400,000. Someone else may have a different opinion, but I have market evidence."

An appraiser tries to compare sales of similar properties from the last 60 to 90 days.

Similar properties currently on the market almost set a value ceiling.

"If another similar condominium is on the market for a certain amount, why would you pay more for this unit?" De Vries said.

An appraiser also must take into account how the market has changed since the comparable homes sold.

"In a slower market, there are fewer transactions," he said. "There's less data, and that does make it harder."

As of January, people seeking appraisal credentials across the country will need more education, he said, thanks to new rules from the Appraisal Qualifications Board. It does not affect current licensees.

"A lot of the problems we've had have been from new appraisers," he said.

Blaydes said mortgages above $250,000 that are somehow related to the federal government -- which includes most residential loans of that size -- require a licensed appraiser.

But he thinks this should be necessary for all sales.

"Probably the majority of the foreclosures have been under $250,000," he said.

"Mandatory licensing is most important," Blaydes said.