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Buying a Home? You Might Want to Double-Check the Numbers Your Appraiser Comes Up With.

"If you thought what was happening before was an embarrassment, wait until the second time around."

(Image via Taylor McBride/flickr)

They're supposed to be unbiased experts, impartially examining the data and producing their best estimate of a home's value.

But are they failing in that mission — working for loan companies and forcing you to pay more than you should for your home?

(Image via Taylor McBride/flickr) (Image via Taylor McBride/flickr)

In report this week, the Wall Street Journal relayed data from the mortgage-analysis and consulting firm Digital Risk Analytics with some pretty bold findings: One in seven recent appraisals inflated a home's value by 20 percent or more.

Digital Risk's assessment came from a review of more than 200,000 mortgages issued between 2011 and 2014.

Appraising a home's value is not an exact science, industry veterans told TheBlaze, so a variance of up to 5 or 10 percent might be understandable — appraisers have to make judgment calls on the value of a home's features and must select "comparable properties" to see the prices at which similar homes recently sold, so two different appraisers could likely produce different estimates of a home's value.

But a difference of more than 20 percent? That's suspicious territory.

"I'm not certain why an appraiser would [artificially boost a valuation]," Alan Hummel, senior vice president at Forsythe Appraisals, told TheBlaze. "There is no incentive for a competent, ethical appraiser to do that. The appraiser gets paid regardless of the outcome for the client."

Hummel said typical appraisal fees run between $290 and $400, a flat sum paid to the appraiser whether or not the sale of the property goes through.

But as the Journal noted, there is a major incentive for dirty appraisers to boost a valuation: The promise of future work from loan companies that like seeing higher home prices.

(Image via Frank Maurer/flickr) (Image via Frank Maurer/flickr)

The Journal warned that appraisers inflating home valuations is a practice taken straight from the days before the housing market bubble burst in 2006-07 — and the appraiser-advocacy firm Allterra Group reported that in its yearly survey of appraisers, 40 percent said they had come under pressure to inflate home values.

With the Mortgage Bankers Association estimating that the dollar amount of new mortgages issued in 2014 will be down 39 percent from last year, at about $1.12 trillion, it stands to reason that loan companies might want to boost the values of individual loans.

But the practice could merely inflate yet another housing bubble.

"If you thought what was happening before was an embarrassment, wait until the second time around," said Joan Trice, Allterra's chief executive.

Forsythe Appraisals' Hummel, who has previously served as national president of the Appraisal Institute, told TheBlaze that despite the pressure, the "vast majority" of "competent, ethical appraisers" would stick to their guns and deliver impartial estimates.

"Appraisers are hired for their expertise, not to be an advocate for anyone involved in the deal," Hummel said, saying that appraisers are more similar to notaries public than lawyers.

Skittish in the wake of the housing bubble bursting, banks are more cautious and have several extra layers of appraisal review, Hummel claimed.

"We have seen such a tight rein on review and credibility of appraisals on the banking side, that it's difficult to get an inflated appraisal through the system," he said.

Still, home buyers should "absolutely do their own homework," Hummel said, if they have any doubts about an appraisal.

[sharequote align="center"]"Drive past 'em yourself. Say, 'Does that look like my house?'"[/sharequote]

"Most homeowners' goal is to get financing for the property they've already decided on," Hummel noted, saying that buyers should not accept appraisals at face value but should look into the methodology — especially the "comparable properties" the appraiser used to gauge the home's value.

The Journal noted that careful selection of "comparable properties" was a prime tactic for crooked appraisers, as an appraiser could select, for instance, the selling prices of waterfront properties to use in appraising a home many blocks away from the water.

"Drive past [the 'comparable properties'] yourself," Hummel urged. "Say, 'Does that look like my house?'"

At the end of the day, Hummel said buyers might not have much to worry about — he speculated that Digital Risk's analysis may have been skewed by a pool of already-suspect appraisals — but that buyers should be vigilant throughout the home buying process.

"Buyers should not want to overpay for their homes," Hummel said. "We've seen what happens when that occurs."

Follow Zach Noble (@thezachnoble) on Twitter

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