In a sluggish market, desperate real estate agents and mortgage brokers may pressure appraisers to artificially increase property values. But the tactic can backfire if mortgage underwriters cancel loans because they think the sales prices are too high to be justified. To avoid problems, sellers need to be completely realistic when setting the prices for their homes.

As values for homes across the U.S. continue their decline, real estate appraisers report increased pressure from real estate agents and mortgage brokers to help bolster values. In candid surveys recently conducted by the publishers of Valuation Review, a popular appraisal industry newsletter, appraisers complained that they were sometimes being asked to fudge the numbers upward in order to help facilitate sales.

Appraisers under pressure

A surprising number of the appraisers who participated in the surveys reported that mortgage brokers, real estate agents, lenders, and even consumers have tried to get them to raise property valuations to make deals work. And many of the appraisers said that after they refused to cooperate with requests to pump up values, they lost the future business of those clients. The research also showed a dramatic rise in such practices compared to a similar study conducted in 2003, when almost half of those polled said that they were never asked to tinker with prices.

Tightening standards

The increased pressure on appraisers leads many to believe that their valuations are no longer reliable. This has inspired some restrictive changes in how mortgage companies review loan amounts. For years, lenders have been liberal when approving mortgages for buyers, as home prices steadily rose. But within the past two years-as homeowners have defaulted on their loans in record numbers-investors who purchase loans in secondary markets have demanded tighter standards.

Now the pendulum appears to be swinging the direction of closer scrutiny. Even when a buyer and seller agree on a price, loan underwriters want to ensure that it realistically reflects the actual market value of the property. With foreclosures on the rise, mortgage companies don't want to get stuck with homes that aren't worth as much as the loan amounts. Hence, they're taking harder looks at appraisals and sales prices.

Be realistic

If the buyer's loan falls through, an imminent sale can suddenly vanish. Some of the biggest lenders in the nation have already begun to use multiple appraisals and accept only the lowest valuation. As a result, homeowners need to be more realistic than ever when naming their asking price.

Rather than accept the first figures that a listing agent tosses out, sellers should do their homework and make sure that their asking prices are in line with recent market values and expectations. Otherwise, they might lose precious time during a competitive buyer's market, or even worse-lose the sale itself.

Published on August 12, 2009