I am beginning to suspect that the Realtor’s association and the Mortgage Broker’s association are pro-fraud.

Yesterday, I noted the bizarre (and potentially corrupt) statement from NAR economists Lawrence Yun calling for appraisers “familiar” with local neighborhoods:

“Lenders are using appraisers who may not be familiar with a neighborhood, or who compare traditional homes with distressed and discounted sales. In the past month, stories of appraisal problems have been snowballing from across the country with many contracts falling through at the last moment. There is danger of a delayed housing market recovery and a further rise in foreclosures if the appraisal problems are not quickly corrected.”

I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals.

I did some more digging, and I quickly discovered what this contemptible suggestion was all about: It is part of a broader lobbying effort by the The National Association of Mortgage Brokers (NAMB) and The National Association of Realtors (NAR) against honest appraisals.

For more proof of this lobbying effort, see the letters to mortgage brokers and real estate agents from their trade associations to mobilize against mandating honest appraisals ( Mortgage Broker’s Anti-Appraisal Reform Lobbying and Effort and this NAR Lobbying letter).

Why is this significant?

Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period. Many (but not all) mortgage brokers and realtors referred buyers to appraisers that ALWAYS hit the number of the home purchase price.

A Bernie Madoff-like 100% success rate is often cause for suspicion, but we have much harder evidence than a statistical fluke. For that, let’s go to the big book of real estate fraud, Bailout Nation:

Fraud in Real Estate, Mortgages, and Home Building
Minor amounts of real estate–related fraud have always existed. During the housing boom years of 2002 to 2007, it became a pandemic. These various fraudulent actions helped make the housing boom much bigger—and the bust that much more painful:

Appraisal fraud: Historically, there was no incentive to inflate appraisals. But with the rise of the mortgage brokers—many working closely with real estate agents—the business of steering appraisals to the most generous rose rapidly. By inflating appraisals, many appraisers found they could attract more referral business; some even managed to always hit the target prices given by real estate agents, which contributed significantly to the huge run-up in home prices. In 2005, more than 8,000 appraisers—roughly 10 percent of the industry—petitioned the federal government to take action against such abuses. But both Congress and the White House did nothing, allowing this rampant fraud to continue unabated.

So the very people who were enormous contributors to the credit bubble (mortgage brokers), and their colleagues who helped feed the housing boom and bust via friendly (i.e., corrupt) appraisals (RE Brokers, appraisers), are now mobilizing to make sure that honest appraisal reform is thwarted.

The NAR and NAMB apparently have no ethics to speak of. Their shameless self-interest, regardless of the damage it may cause, disgusts me . . .


Fraud in Real Estate, Mortgages & Homebuilders (August 17th, 2008)


Nonfeasance in Financial Oversight (August 18th, 2008)


Lobbying Letters

NAR Urges 18 Month Moratorium on Appraisal Reform

Mortgage Broker’s Anti-Appraisal Reform Lobbying Effort

Realtor’s Anti Appraisal Reform Lobbying Effort

NAR starts offensive against HVCC
Effective Demand, June 23, 2009


Mortgage Brokers Fight To Stop HVCC
The Truth About Mortgage.com, April 27 2009


Anti Appraisal Reform blog:

HVCC – We’ve Had Enough!


Mortgage Broker bulletin board:

HVCC – To anyone who said it cannot be changed


[NAHB] New Guidelines For Appraisers: Break Into Houses?
Matrix, June 24, 2009


Mortgage Lending Status Quo – Appraisal As Nuisance
Matrix, June 17, 2009


NAR Code of Ethics Amendment Imposes Duty on Realtor For Statements of Third Parties in Social Media
Sellsius May 19th, 2009


Appraisal Fraud: Your Home at Risk
Appraisers Say They’re Being Pressured by Lenders to Inflate Their Estimates of Home Values
Sarah Max
CNNMoney, June 2, 2005,
http://money.cnn.com/2005/05/23/real estate/financing/appraisalfraud/index.htm.

Category: Credit, Legal, Real Estate, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

85 Responses to “NAR, NAMB Fighting Appraisal Reform”

  1. This was my original closer:

    The NAR and NAMB have the ethics of Taiwanese pimps selling 10 year olds girls to the sex tourist trade. To say these shameless whores disgust me is to understate the issue . . .

  2. randy says:


    Thanks for clarifying that. I was unclear about your feelings on the NAR and NAMB.

    Imho, the real problem with the appraisal market is that all of the incentives work in the same direction. Everyone gets paid more for higher appraisals, including the local government. No one gets paid more for lower appraisals. I would not normally call that a corrupt market. I would call it a mis-designed and non-competitive market.

    How can we get an actor engaged in the market who has a financial incentive to counter-balance the appraisers? That would be a change I could believe in.

  3. jnutley says:

    “Everyone gets paid more for higher appraisals, including the local government.”

    Randy is dead right on this. It’s a feedback loop that drives everything up until one of the elements overloads and burns.

  4. stanleybdavis says:

    Barry, how do you feel about NAR/NAMB really?

    Good call out on one of the key elements of the problem. But I’m still not letting all the other players off the hook. Gecko was wrong. Greed destroys free markets.

  5. MindatLarge says:

    From a risk perspective, as a bank, I’d want to know every sale regardless of the circumstances. A bank needs to know how much it can expect to get if they need to foreclose in a short time.

    As disturbing as Lawrence Yun’s statement is, the bigger problem is that the population of homeowners that read his comments will agree with him. People will never be happy with the sales comparison approach to home valuation, because no homeowner believes that people wont see there house as some huge step up from all the other homes in the neighborhood.

  6. Marcus Aurelius says:

    Fools and their money will be separated.

    Reminds me of the old Marxism (Groucho, that is):

    “Who are you going to believe — me, or your own lying eyes?”

  7. call me ahab says:

    randy & jnutley-

    appraisals are a flat fee- so a higher appraised price will not change how much the appraiser is paid- however by bringing in higher value- they guarantee more referrals

  8. Transor Z says:

    At least there’s no uniform standards for appraisals, so that’s good.

  9. [...] appraisals are killing the housing market Jump to Comments Only if appraisers will mark up prices 300x the economy can be cooking again: I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals. I did [...]

  10. Bruce N Tennessee says:

    If all appraisers could just be paid out of TARP funds, there would be no incentive for wrong doing….

    Uh, snark off….

  11. Bruce N Tennessee says:


    U.S. Economy: Lower Home Prices Fuel Gain in Resales

    Distressed Sales

    “Distressed sales and first-time buyers made up a smaller portion of the market last month as more families stepped in during this time of year, NAR’s chief economist Lawrence Yun, said during a press conference.

    One new obstacle to sales is “unrealistically low’ appraisals, Yun also said. Agents have “bombarded’ the group with complaints that the lower quotes are delaying, and in some cases scuttling, closings at the last minute, he said. ”

    ….This from yesterday’s news Barry, goes along with your main thesis. “Yun can cook” the books…

  12. wally says:

    “Appraisal fraud was a huge contributor to the unsustainable run up in prices during the boom period. Realtors.”

    Not just fraud. Even ‘honest’ appraisals, when based on comps – as is the US system – will ride up with a bubble and give false results.

  13. Marcus Aurelius says:

    As much as I think the WaPo has signed on to the corporate/media/government axis of evil, every now and then, they can’t avoid engaging in actual reporting:


    Keep one eye on the dollar.

  14. Wes Schott says:

    in the 80′s in Houston, the appraisals, especially in the commercial real estate market, were all about getting a bigger loan, flipping and moving on ad infinitum, until it stops – oil price collapse of 1985 – then the banks went bust through the early 1990′s – appraisal fraud was rapant…

  15. CNBC Sucks says:

    Barry W. Ritholtz – I get your speed on regulatory reform. I also remember you talkin’ about “Libertarian leanings”. I know you would argue that the two are not mutually inconsistent, but I think they are to some extent. And in that context, The Great CNBC Sucks may be just as or more Libertarian than you.

    Generally, I agree with you on your reformist views regarding EVERYTHING from executive compensation to appraisals, in this case. However, I cannot help but feel that such a body of regulation is just a dyke – I mean that in the Dutch sense – holding back a sea of American loss of moral and intellectual character, ethics, responsibility, and respect for self and others. I totally agree with you that we need better laws, but I am afraid that without better people, new laws won’t really help much, ultimately.

    Time and again throughout history, the things that have rebuilt morals and ethics in people are not laws but prolonged hardship and adversity. Through money printing and obsession with trivia (emo or indie), we Americans have been successful in postponing and deadening the consequences of our dissoluteness (yeah, that is the proper form – not “dissolution”). But I have a really bad feeling that your reform won’t help much in turning the tide of the broader erosion of our American sense of doing what is right, nor save us from the full extent of its penalty.

    Hopefully, I will have died in my sleep of very old age by then.

  16. The Curmudgeon says:

    Appraisals to a real estate transaction are akin to ratings from a ratings agency in a CLO/CMB/RMBS etc. sale.

    They give the imprimatur of legitimacy to the transaction, no matter its underlying fundamentals, and no matter how many false premises are used in calculating the appraised value.

    In most locales, appraisals done today could not possibly be accurate. If surrounding properties are rapidly changing in price due to foreclosures, etc., the direction and velocity of the changes as reflected in the appraisals will be nothing more than a guess.

    They should banish appraisals, and reliance on them, for residential real estate transactions that are ultimately funded by the taxpayers (about 95% right now). Look to the borrower, not the property, in order to get your money back.

  17. MA,

    nice link. and, like the ECB ‘taking shots’ at the FedRes, reported yesterday, get ready for a welter of similiar stories.

    see form2, def. 3 http://www.thefreedictionary.com/welter

    the rising Tide, of such, to soften the Beachhead for the Institutional purging of the U$D..

    peep better get their Magnifying Glasses out, and study up on the Fine Print of the, Many, Contracts we all are engaged in..

  18. How the Common Man Sees It says:

    Ha! They want the system to skew in their favor? WHAT A CROCK! Everybody thinks they are a bank these days!

  19. CuriousCreature says:

    A friend of mine owns an appraisal company and IMHO this new law really is a mess.

    The government has taken a sledge hammer approach to this problem. This is simply creating an unnecessary layer of bureaucracy. I come from the heavily regulated student loan industry. I saw the same developments there.

    The answer- initiate action against bad appraisers and take their license away. Period.

  20. BG says:

    We haven’t learned anything have we?

    We for the most part STILL have not prosecuted anyone for anything.

    We have given the people most responsible for creating this scheme in the first place trillions of dollars to keep them afloat and continue to give each other bonuses (for doing what I am not sure).

    The Banks STILL have (for the most part) all of that toxic debt on their balance sheet.

    We refuse to get serious about financial regulation due to political (and probably financial i.e. bribes) conflicts in NY, Chicago & DC.

    Now we are preparing to give the FED more power when they are largely responsible for instigating the whole mess in the 1st place (who refused to do anything to mitigate the problem until it blew sky high).

    So, now the appraisers have been given the green light to go right back to business as usual inflating appriasal values so the loan will get approved on property worth less than its associated loan value.

    We, as a collective group are the most unethical, stupid bunch of fucks I have ever seen.

    Fuck a bunch of moral hazard, start prosecuting some of the SOBs, God dammit!!


  21. [...] is a brief excerpt from his post: I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals. I did [...]

  22. CNBC Sucks says:

    BG, sounds like you need a four-day “hiking trail” in Argentina.

    Don’t worry…we won’t tell your wife.

  23. dussasr says:

    I am a real estate investor who buys, rehabs and sell houses and small apartments and keep some for rentals, too. I’m still in business by the way!

    I have seen the appraisal problems first hand. However, the best solution to bad appraisals is not more regulation. It is simply to keep the bank financially interested in the loan. I use a small, locally owned thrift to fund all of my loans. These guys are smart business people and they keep all of their loans on their own books. Therefore, they have a vested interest in making sure the loans don’t go bad.

    In order to help prevent appraisal problems they require you to use their approved appraiser. They only have two approved appraisers. Both of the appraisers are accruate and conservative. If their number comes in low I have to put more money down or I can take my loan business elsewhere. It’s as simple as that.

    In an arrangement like this the bank knows the appraiser and if they do bad appraisals the bank loses money and they soon get a different appraiser. The appraisers that stay on the bank’s approved list are not only ethical, but are also skilled at getting the number right. Problem solved.

    -Steve Dussault

  24. E says:

    I’m with CuriousCreature – the new law that went into effect in April or May requiring greater distance between originators and appraisers has had unintended consequences on the process. My own anecdotal experience was that an appraisal, even though it is independently ordered and conducted, is not portable – each originator must order a seperate appraisal. This means that borrowers cannot shop around for loans the way we used to.

    After getting tied up in the bureaucracy of it all for a couple weeks, rates shot back up and we missed our window. I can’t be the only one who had this happen.

  25. Greg0658 says:

    @9:11am .. maybe the tobacco industry is thinkin of moving to South America? just gotta escape all this money out the door to lawyers .. free will is so anti-PC

    back to the thread .. the counter balance is the property taxes due on the over-inflated home appraisal and the related MEW perks .. taxes can be disputed later in the process with a RoI
    .. but this stuff was discussed in here over a year ago .. I remember writing how its the engine for government and builders and the home market manufacturers and the lawyers and the bankers and the real estate agents and the Red Roof Inns with temp workers building subdivisions
    … the loop back is just so loopy

    we have a TIF funded new hotel/motel going up nearby .. and not 300 feet away is an older hotel/motel (that in its day was of the same brand name) .. now owned by some shmuck that thought buyin that old structure and refurbin it was a step forward into the American dream … that was so 20th century .. the time before paper pushers

  26. I had to fight the urge to point out what would happen if The National Association of Mortgage Brokers opened a branch office in Louisiana or Los Angeles. . .

  27. km4 says:

    @BG Says June 24th, 2009 at 8:56 am
    The elites and politicians are mainly driven my self interest of faux power and greed so perpetuating the financial ( ponzi scheme ) engineering of the US economy continues unabated. However with America and Americans now swimming in debt this is not sustainable going forward so things will probably get very ugly.

  28. Onlooker from Troy says:

    I’m of the mind that it’s very difficult to just “make people behave”, especially when there’s a strong current against you, like a conflict of interest. Which is exactly what’s at work here. I agree dussasr that we need a financial incentive for an interested party here to keep things in check; i.e. the banks.

    That ties in with the overall problem of the banks unloading their loans and thus not having a long term financial interest in the quality of the loans. If you make them keep some significant skin in the game it will go a long way towards minimizing the appraiser problem as well. God knows the realtors won’t do it. Their interest is clearly in inflating prices.

  29. Kris Dannon says:

    Realtors and the odius residential real-estate business model, along with its ‘instrument of monopoly’, the MLS, played an enormous part in fueling the greatest real estate assett bubble of all time: 1998-2007. Indeed, the huge part played in the ensuing collapse of the American financial system by realtors and appraisers is rarely acknowledged much less, fully recognized.

    Wall Street is guilty of packaging and issuing the false ratings on MBS.CDO’s then spreading the poisoned debt tranches far and wide. But the wretched easy-money business model of franchised real estate firms and their million-dollar-club spoiled-kid agents (young and old) produced the super-fuel for the blast.. So much so, that like radioactive fallout with a 100 year half-life, the aftermath of the real estate assett bubble has yet to leave its full mark upon us and no doubt will be with us a long, long time.

    This fact is, as I say, rarely acknowledged, because much of the country was successfully recruited into following the avaricious mindset of “licensed” realtors and “certified” appraisers, who knew very well the game and how to get rich by it. Thankfully, it will be decades before flipping homes and land parcels is ever likely to earn any of them a dime again.

  30. Scott F says:

    The spin continues:

    Home-Price Recovery in U.S. May Be Undermined by Appraisals

    There may be another culprit scuttling a U.S. housing recovery: low home appraisals.

    Flawed appraisals are derailing real estate sales and depressing values across the U.S., the National Association of Realtors said yesterday as it reported that existing home prices declined 17 percent in May from a year earlier.

    “It’s pointing to thousands of delayed or canceled transactions,” Lawrence Yun, chief economist of the Chicago- based Realtors group, said in an interview. “We’ve had a massive inundation from members saying this is a big problem.”

    Appraisal rules that went into effect on May 1 require lenders that sell loans to Fannie Mae or Freddie Mac to set up a firewall between appraisers and loan officers to prevent improper influence. The rules are the result of an agreement between the mortgage buyers and New York Attorney General Andrew Cuomo, who said an investigation found appraisers inflated values under pressure from lenders.

    The agreement mandates that banks order a second appraisal on 10 percent of the loans they sell to Fannie Mae and Freddie Mac, and warns against accepting the higher of any two valuations. The guidelines have led to more conservative valuations by many appraisers and a “chill” in lending, according to John Brennan, research director at the Appraisal Foundation, a Washington-based trade group.

    ‘Unintended Consequences’

    “Sometimes policy can lead to unintended consequences,” Yun said.

    Cuomo said in December when the appraisal agreement was reached that the deal “preserves the core goals of ensuring appraiser independence and eliminating systemic conflicts of interest.”

    Alex Detrick, a spokesman for Cuomo, didn’t immediately respond yesterday to a request for comment.

    When home values come in below the sales price, that’s not the appraiser’s fault, it’s a reflection of the market, the Appraisal Institute, a Chicago-based professional group that represents more than 25,000 appraisers, said in a statement yesterday.

    “We take offense with the notion that an appraisal is only good if it happens to come in at the sales price,” the group said. “That mentality helped cause the mortgage meltdown to begin with.”

    More deals are falling apart in a housing market that needs transactions to recover from a three-year slump that has dragged the U.S. into a recession. Low appraisals join a list of suspected obstacles standing in the way of a rebound that includes rising interest rates, a glut of foreclosed properties, and the highest unemployment rate since 1983.

  31. Transor Z says:

    First, we’re talking NAR here and not NRA. I’m really not understanding the “appraisals don’t rob people; people rob people” argument against imposing standard methods on appraisers.

    If an outside auditor cannot come in and reproduce the appraisal results you generated using industry-standard metrics, then your appraisal is bullshit, made-up.

    NAR’s use of “local” as used here is synonymous with “discretionary.” That means giving appraisers “wide latitude to account for regional idiosyncracies,” which necessarily limits accountability against industry standards — and most likely would mean that those industry standards, probably created in collaboration with the NAR, would remain vague and non-transparent.

    Make audited appraisers liable in fines to the state/federal agencies in an amount equal to unsupportable deviations from the norm or $10,000 per violation, whichever is greater. If the bank provides a required appraiser list, the bank is also on the hook.

  32. VennData says:

    Great work on NAR support for appraisers… appraisers: the corner Moody’s / S&P rating agency.

  33. GB says:

    lol. um appraisals are low because, ah hem, until real estate stops dropping and is now risky.

    naw that’s not it.

  34. [...] being depresses and appraisals correctly reflecting that.” Meanwhile, Barry Ritholtz of the Big Picture makes the same point and links to some interesting lobbying efforts from mortgage brokers and [...]

  35. govy says:

    Realistically, there should be three appraisals on every home representing the interested parties (the bank, the realtor and the buyer). They should then sit in a room and work it out, but that will never happen. Barring that, there should be an impartial model of some sort (FICO) that would use inputs of upgrades within the house and comps in the neighborhood (like your home insurance). In the end, as with any model, your variance will probably still be 10-15%. Oh well…..

  36. dead hobo says:


    I just looked at some supporting data behind the durable goods orders, shipments, and inventories report.

    The cheery durable goods numbers were offset by declining backlogs and declining inventories. In most cases, orders were far less than shipments and shipments are declining. Thus, order are increasing in a market of decreasing size. Additionally, 2009 is less than 2008 in nearly all categories for orders, shipments, and backlog. Defense items show some increase over 2008 and a very small amount of electronics show a small increasing backlog. Overall, it looks dismal. The orders only numbers tell an incomplete and inaccurate story.

    Anyone who buys on this news is a computer or an idiot.

  37. ben22 says:

    I’ll ask the stupid question: Why does Lawrence Yun still have a job?

    This is beyond crazy to me.

    I just watched the video of that clown in the video’s section, “unrealistic appraisal values” No Lawrence, home prices have come down, and they are going to come down further, those are the real values.

  38. BR:
    Have you gotten any irate calls from Yun or his lackeys at NAR yet?


    BR No, but I already let a few people jknow that this is spin, plain and simple. That Bloomberg piece was nott heir finest hour . . .

  39. ben22:
    Yun still has a job because he’s just doing what his “masters” tell him. As BR says, the NAR is thoroughly corrupt.

  40. Transor Z says:


    In the end, as with any model, your variance will probably still be 10-15%. Oh well…..

    True enough. I think the most important thing that HVCC can help move us toward is consistent standards. The main value here is adjusting the expectations of the parties to a transaction so that everyone can adapt to a new norm. If lenders truly want to lend, they’ll adapt to the new normal, maybe being flexible with downpayment amount.

    Closings are always stressful, even during RE booms. Originators screw up the paperwork, don’t release it for the closing attorney to review until minutes before the closing, wire transfers into escrow get screwed up, loan docs can’t be downloaded on time due to software glitches — the process can really suck. If you’ve ever bought a home you know that. NAR here is just preying on the already existing fears of homebuyers that the deal will fall through at closing or surprise fees will emerge last minute.

    Another thing that’s going on here is that NAR is fighting a desperate rearguard action to prop up prices in the “affordable” (i.e., lower end) of home sales, which are the only things moving right now. They’re trying like hell to compartmentalize that segment of the market from the rest, which is dead.

  41. drdebt says:

    Barry, You’re really offbase on this one. You’ve let your bias against mortgage brokers and the NAR blind you to the facts.

    The “out of area” appraisers has to do with the process by which appraisers bid on appraisal assignments. The HVCCs assign appraisers based on how cheap and how fast an appraiser says they’ll complete the assignment. So what happens is that some appraisers from another county bid and win…even though they are not familiar with the area and oftentimes do not have access to all of the online databases available. If you think an appraiser from 100 miles away, unfamiliar with the neighborhoods can produce as good as an appraisal as a local, professional appraiser, you’re wrong.

    This whole middle-man company, oftentimes owned by lenders, is a mess. Unfortunately you cannot legislate ethical behavior and the vast majority of appraise want to do quality work. Paying them less and giving them less time is not the way to get there.


    BR: You mean to tell me that I need to be “Familiar” with an area to do appraisals? Its not based on some objective measure, like comps, taxes, averag eincome, etc.?

  42. Mike in Nola says:

    I think you are being hard on Louisiana. Since being in Texas, I think better of Louisiana ethics. There is as much funny business going on here, they just don’t think anything of it. Latest story is one of the local clerks of court collecting $4k/month from a business that does business with his office. But, he says it was approved as ethical by a local governmental attorney. The governor is owned by a local developer and established a board that all aggrieved home buyers have to go through to get relief for construction defects. Guess who is on the board and guess who gets no relief? I think it’s sorta the Wall Street mindset where stealing is not bad as long as it’s not technically illegal. I believe it’s Louisiana’s Catholic guilt that makes us embarassed about thieves and creates a sense the Louisiana is more corrupt whereas in other areas it’s just considered hard headed business practice. After all who is more corrupt that Wall Street?

    [BR: No, I was merely referring to what their regional acronym would be — NAMB LA~!)

    BTW, I have no first hand knowledge, but the stories I’ve read about chld prostitution seem to come out of Thailand, not Taiwan.

    Marcus: re: okay if fools are separated from their money. Trouble is we are backstopping all the fools.

  43. Transor Z says:

    @Mike in Nola:

    NAMB + La = ?

  44. DL says:

    Barney Frank wants Fannie and Freddie to LOWER their lending standards:


  45. Bruce N Tennessee says:

    Mike, I say boy, time for some coffee! I saw that too, but only a warped mind like Barry’s would have posted it….

    A little off topic…I see that the governor of California is brilliant! Crisis solved!

    Deep in Bedrock, Clean Energy and Quake Fears

    “A huge geothermal project north of San Francisco has raised fears of earthquakes. ”

    This is just brilliant! You drill for geothermal energy…it causes an earthquake…and bingo, bongo!..You apply for disaster aid and are bailed out of the budget crisis! They are thinking 3 levels above my top capacity!

    I wonder if we could pull off the same thing here in Tennessee…..hmmmmm….

  46. Mike in Nola says:

    Transor Z:
    I didn’t quite understand it either, but figured it was a veiled comparison to Taiwanese pimps. In any case, I felt like LA was being dissed, which in NOLA is good cause for popping a cap up someone’s ass. Reports of that kind of activity are not exaggerated.

  47. Christopher says:

    It wouldn’t surprise me at all to find that the growth of the appraisal “industry” neatly jives with the inflation of the RE bubble.

    Chicken or egg??

  48. Thor says:

    Bruce – awww, kick us while we’re down why dontcha ;-)

  49. See what happens when I am out of pocket for awhile, Thanks for the link!

  50. Mike in Nola says:

    Completely OT, what’s going on here?


    Girlfriend? Boyfriend? Taiwanese pimp? Since he’e a Republican politician the possibilities are limitless. At least Edwin Edwards was a straight crook and proud of it :)

  51. S Brennan says:

    I’ve never liked the over-reliance of comps. Yes comps, save a lot of legwork and they are easy to back-up. Few people on this blog seem to appreciate the condition of the property, within a block of my house two similarly sized and situated houses appraised within 10,000 dollars of each other.

    One had a new roof , plumbing [street to faucet], recently updated bathroom [new fixtures, tile], kitchen [new appliances, granite, stone floor], windows, light fixtures, concrete driveway, heating system and landscaping, it was a credit to the neighborhood.

    The other had not had not had any major work done on it since 1968, no dishwasher the kitchen was 1963, but they did do a quick spray of ONE color on the inside and it was cleaned professionally [it needed it]

    A young couple bought the second house, they were willing to pay 55,000 more for house that was in perfect condition, but the appraisal was too low for the bank, they will spend years and a lot more than 50 k to get their house to a comparable state. They knew, they weren’t dumb kids.

    The guy who owned the fixed up house, took his off the market, his nephew lives there now and he doesn’t seem like the kinda guy that will do the upkeep like his Uncle did.

    Not everything in life is a simple formula, appraisers are lazy and people who depend on comps to set value have never spent years bringing a house back from neglect.

  52. sberkland says:

    I’m a housing bubble blogger-turned realtor.
    This is what I see as a problem with appraisals. The AMCs are making 40% of the appraisal fee, and paying inexperienced out-of-town appraisers only $150-200 for an appraisal. My last 3 appraisals in San Diego were done by appraisers from 90 miles away, in Orange County!
    Here’s what happened on a refi on a downtown 10th story penthouse. The appraiser had 4 recent comps, of similar age in that building. He chose to ignore the 9th floor comps, and instead used the 4th floor comps. The 4th floor units were interior, so not only a lower floor but inferior units. Obviously, the penthouse did not appraise to refinance. The appraiser justified his report by saying, “the 4th floor comps more accurately reflect the deteriorating conditions of the downtown condo market”.
    On a foreclosure offer for a house easily worth $300K, my buyer offered $290K. The asset manager selected a lower-offer cash buyer, because she was afraid the appraisal would not come in.
    A large REO listing agent told me that many buyers are coming in with cash to cover the difference between offer and appraisal, because banks have so many offers, they don’t need to take the cut in price. My lender told me that the sellers will reduce their offer price if an appraisal comes in low.
    So the problem is that the appraisers are erroring in the direction of lower prices, because they get “dinged” when a 2nd appraisal (often done), comes in lower.
    The new procedure is more about covering their own butts, than an accurate appraisal. I think we need professional appraisers, who get paid $400, from the local area.
    As a realtor, I always run comps for my buyers, and I’m the one who tells buyers to keep renting. I’m very conservative. So when an appraisal comes in lower than my comps, there is something very wrong going on here.
    All of you are right to bitch about realtors. Most of them are realt-whores, but I do meet a few good ones. Like in any business, there is good and bad. I’d say we can’t lump Barry with all the shady financial advisors over the past decade. There are good economists, good lawyers, good realtors. But not too many.

    See my website for more on San Diego housing

  53. gordo365 says:

    I refinanced last month – and the lender tacked on a $300 charge for reviewing the appraisal. Now, they actually review and double check the appraisal to make sure it is believable. (I guess the lender is checking comps now and not just taking appraiser’s word)

    A couple reactions 1) why should I have to pay for that? 2) I can’t believe they didn’t sanity check appraisals previously 3) It’s good to have lenders keep some “skin in the game” and not just collateralize and pass along.

  54. Andrew Krone says:

    I could not agree more. I get emails all the time from a local agent here in Marin County (California). She ignores the influx of REO properties and the foreclosure situation so she can report hi prices despite the reality. The Association of Realtors needs to share ALL market data with prospective buyers, not just the data that looks good. It really is a bunch of BS.

  55. drollere says:

    we gave up mark to market in business accounting months ago.

    why shouldn’t home sellers have the same privilege? especially with those new granite counters and pergo floors?

  56. Christopher says:

    “Like in any business, there is good and bad. I’d say we can’t lump Barry with all the shady financial advisors over the past decade. There are good economists, good lawyers, good realtors. But not too many.”

    Well said….and an excellent point.

  57. Pat G. says:

    The clarification was a great analogy!

  58. CNBC Sucks says:

    I was trying to figure out what was the deal with this NAMBLA business until I looked it up. Geepers. I regret having brought up catamites earlier this month: http://www.ritholtz.com/blog/2009/06/compensation-symptom-problem/#comment-182264

    You don’t suppose this has anything to do with Mark Sanford, do you?

  59. CNBC Sucks says:

    Ritholtz, you have watched a lot more Daily Show than I have. I really am a Republican.

  60. Transor Z says:


    I think we need professional appraisers, who get paid $400, from the local area.

    Thanks for the story. I like stories. Here’s a story for you:

    Once upon a time there was a land that loved pork. The people in this land ate pork morning, noon, and night: delicious pork sausages, pulled-pork sandwiches, and pork chops. Pork, pork, pork. The pig industry was the wealthiest and most powerful industry in the land. Pork was very much in demand and expensive but since so many people made a very good living in the industry, money was never a problem. One such class of people were known as pigginators.

    What is a pigginator? Well, you see, the process of moving pigs to market is very stressful on the pigs. Sometimes the pigs arrive bedraggled and depressed from long crowded journeys. That’s where the pigginator comes in. Using special equipment and a time-honored craft, the pigginator masturbates the pigs so they have a healthy, happy glow when it’s time for auction. In many areas, pigginators charged $400 per piggy orgasm, and business was very good.

    But there was a big problem in the land. The people ate so much pork that they became very fat. For a while the fad diet industry attracted many customers. But, as happens from time to time in human history, the people of the land became so unhappy that they decided that something more was needed to fight the obesity epidemic. They decided that the problem was spiritual and they decided that they needed religion to save themselves from themselves. And the people found religion. Unfortunately for the pig industry, the religion they found was one that forbids eating pork.

    Almost overnight the pig industry collapsed across the land. People who ate pork were beaten. People who sold pork were killed. And what of the poor pigginators? Well, fortunately for them, the religion did not forbid using pigs for scientific experiments. Of course, the research sector did not need millions and millions of pigs, but it did need a few. And every now and then, when government inspectors visited labs to make sure that the lab pigs were being treated humanely, there was a role for the pigginator, except now, the ones lucky enough to find work only got paid $150-$200 per orgasm.


  61. [...] “Appraisal fraud was an enormous contributor to the unsustainable run up in prices during the boom period.”  (Big Picture) [...]

  62. Mike in Nola says:

    CNBC Sucks: Maybe he likes gaucho rope tricks, if you know what I mean :)

    I imagine Larry Flynt is on the case and we’ll find out sooner or later.

  63. CNBC Sucks says:

    Transor Z: I loved your fable, but in America, we don’t call people fat, or at least we can’t call fat women fat, lest we be ostracized for political incorrectness. In America, fat women are called Big Beautiful Women (BBW).

    I have now successfully introduced Big Beautiful Women and catamites as search engine keywords for your blog, Ritholtz. Aren’t you happy?

  64. What’s With All the Moaning About Home Appraisals?

    Lately, mortgage brokers, builders, real estate agents and others in the housing business have been moaning about appraisals. On Tuesday, it was the turn of Lawrence Yun, the chief economist of the National Association of Realtors. He lamented that May home sales were “less than expected because poor appraisals are stalling transactions. Pending home sales indicated much stronger activity, but some contracts are falling through from faulty valuations that keep buyers from getting a loan.”

    Left unexplained is how Mr. Yun and others can decide which “valuations” are faulty. Of course, it would be far too cynical to suspect that that the Realtors classify as faulty any appraisal that stands in the way of a commission check. Still, the issue is tricky–and all the moaning in the world is unlikely to make much difference.

    An appraisal is merely an educated guess about the price a home might fetch. It’s true that an experienced and intelligent appraiser knows tricks of the trade that allow him or her to make a better guess than I could. And regulations such as the national Uniform Standards of Professional Appraisal Practice, or USPAP, provide detailed instructions of how to go about this vital chore. But the appraisal is still at best a good guess, and it’s harder to make such guesses when the national housing market is in a freefall the likes of which no living appraiser has ever seen.

  65. Porsche87 says:

    Slightly off topic, the fires in San Diego in 2003 and 2007 resulted in all sorts of insurance claim problems due to the estimated value. There was one application used to generate a quick insurance estimate, which was usually low to hook the buyer. The insurance agent was supposed to then perform an in depth appraisal prior to issuing the policy so the insured amount (and price) captured any upgrades or unique features. Low and behold, many agents never did the second step and homes were vastly under insured, resulting in legal hassles for homeowners and insurers both.

    Using standard metrics is all well and good, but as sberkland and Brennan said, appraisals need to take more than neighborhood, square footage and comps into account. Perhaps appraisals are overrated. Maybe they should just verify that there’s a house where they say it is and it’s not falling down, and everything else centers around the ability to pay back the requested loan amount. Unless you are a Senator, of course.

  66. dussasr says:

    I haven’t seen anyone discuss the size of the down payment as a partial solution to appraisal error/fraud yet. Realistically, the market price of a property should be determined by whatever a buyer and seller agree upon. The appraisal should just be a sanity check on that market based price.

    If the down payments were larger (10% minimum) the appraisal could be a bit off and the buyer would still bear financial responsibility for the purchase price as it should be. Of course large down down payments wouldn’t exactly kick start the housing market.

  67. Lord says:

    Generally it is the lender that offers an approved list of appraisers to choose from. Appraisals generally lag on the way up as well as down since they have to deal with past data. There is quite a variance these days between the very limited number of sales, especially above entry level, and distressed sales which are often in terrible shape.

  68. El Matarife says:

    There is something to be said for familiarity/nonuniformity. My parents tried to refinance their house and were shocked at how low the appraisal came in. It was due to the fact that the standardized appraisals must include the bottom floor as a “basement”. Their bottom floor has a kitchen (the only one in the house) and a living room, hardly a “basement” by any means. if they had been able to count that area as “living space” it would have incerased the appraisal by over 100,000, a huge difference.

  69. Transor Z says:


    At 11:05 am I wrote:
    If lenders truly want to lend, they’ll adapt to the new normal, maybe being flexible with downpayment amount.

    Low appraisals have always been a risk for zero-down or 3.5% down buyers, like VA/FHA borrowers. It’s called “lending standards.” I know it’s strange and alien to everyone, but this is what an environment of responsible lending standards looks like. Shocker.

    If a broker wants to make a commission and not waste valuable time, s/he will communicate to prospective buyers that there have been problems with zero-down purchases in the market caused by low appraisals. It’s also something that can be discussed while negotiating the P&S.

    There’s a reason why places that are “Under Agreement” are still listed on MLS.

  70. AppraiserInCa says:

    To start with, I’m an MAI appraiser in California – that’s pretty much the highest level of achievement and expertise in this field. I’ve got over 20 years of experience. I’m very familiar with the appraisal industry and the current mess that it is. Here are a couple of thoughts. (1) Barry is right – the mortgage and real estate sales industry favors weak appraisal regulation so it does not ever interfere with a deal – they have always been this way. (2) The recent “appraisal reform” legislation made a bad situation worse. Appraisers were barely making any money as it is and now a middleman takes 40-50% of that meager fee. This will lead to further declines in appraiser quality and underwriting. (3) As long as banks sell their loans down the river (or up the river) to Wall Street and have little or no skin in the game once these loans are securitized – bad underwriting and low quality appraisals will continue to dominate the deal stream. (4) CuriousCreature above has it right – the only way for better appraisals is better regulation of appraisers. The state oversight agency is so underfunded and understaffed they can barely process all the license renewals and I have never heard of them prosecuting fraud or incompetence in any meaningful way. (5) When real estate goes bad, everyone wants to hang the appraiser out to dry when they are making minimum wage ($200-$400 for a day of work) compared to the $5,000 – $20,000 fees that mortgage brokers and real estate agents make. Follow the money if you want to find out who is gaming the system.

  71. [...] at The Big Picture blog, Barry Ritholtz lashed back: “I quickly discovered what this contemptible suggestion was all about: It is part of a [...]

  72. Transor,

    @ 13:57

    don’t forget: GOLDMAN SACHS WASN’T THERE!~ (:

  73. [...] Barry Ritholtz has done more digging into this, and suggests that based on the NAR’s activity, you might [...]

  74. TiffTaylor says:

    The code of conduct is the result of a legal settlement with the attorney general of New York. It is applied nationwide. And it should be considered a case study in the value of the legislative process: If the HVCC had been a bill introduced into Congress, it would have never passed without having undergone drastic changes. But it wasn’t a bill and it isn’t a law; it’s a legal settlement by one state’s attorney general, imposed on all 50 states.
    Every public policy has unintended consequences. But that doesn’t mean that the consequences are unforeseen. Plenty of people foresaw the unintended consequences arising from the HVCC. Because it didn’t go through a legislative committee system, because it wasn’t passed by two houses, and because it wasn’t signed by a governor or president, those foreseeable but unintended consequences could be — and were — ignored.

    After 18 years in the mortgage industry, I can’t believe that such poorly written legislation is being enforced and the only loser is the consumer. All wholesale lenders have an appraisal review process, there is no way to pay off or entice an appraiser to bring in a value that isn’t supported by comps. If you do the appraisal will be cut and the appraiser will be placed on the black list. AMC’s can just as easily enticed, so how does this solve the so called problem? The bottom line is that consumers will pay 3.8 billion dollars more in appraisal fees this year… What a Gong Show!

  75. TCornelison says:

    I usually agree with most of what you say but…

    HVCC is brilliant conceptually but we are all very aware that concept and reality often never intersect. You can create rules but you cannot create ethics. The primary flaw in HVCC is that appraisers rely on a variety of sources for information regarding recent home sales. Some of that information comes from loan officers, Realtors and homeowners. Under HVCC the appraiser is forbidden from speaking with a loan officer who is the link to the Realtors and sometimes the homeowners as well.

    For an appraiser to do their best work they need as much data as possible and they need that data to be as accurate as possible. Let’s face it. If the appraiser must pull from County or City records his data quality is going to be poor, at least here in Georgia where I live. Sometimes the appraiser can get really accurate data from the agent who sold a home 2-3 months ago. HVCC has made the entire process more difficult for the appraiser. In reality it is punishing homeowners for the transgressions of unscrupulous loan officers, lenders, Realtors and appraisers. Shouldn’t punishment be targeted towards the guilty instead of the innocent. You are not allowed to tell the appraiser what you think the value is as though this will force an unethical appraiser to suddenly grow a conscience. The good ones use that data to begin searching for comps before they visit the property. I recently ordered an appraisal on a $1.4 Million home. The appraiser had pulled County data on the address and though he was appraising a $60,000 Jim Walter home until he pulled up at the house. He had wasted a great deal of time on useless research.

    One other thing is for sure. If you create a new rule set, unethical people will find a way around those rules and ethical ones will continue to follow the rules just as they always have. There are some definite consequences which I have seen in the last 2 months.

    1. Appraisal Costs have been increased by 30-40% across the board to pay for the layer of bureaucracy created.
    2. Appraisal Quality and accuracy is very inconsistent and generally much lower across the board.
    3. Service delivery is abysmal with a process that in the past took 3-5 days now taking 8-15 days.
    4. Getting corrections made on appraisals now takes 3-5 days instead of 3-8 hours because it must first go to the lender, then the appraisal management firm and finally to the agent and by the time you go through that many people the message gets fuzzy if your lucky and completely miscommunicated if you are not.
    5. The homeowner or home buyer is the loser and the only winner is the former sub-prime mortgage lender who now runs an appraisal management company.

    If you believe all loan officers are dishonest, all appraisers are corrupt easily influenced, all lenders want to loan on insufficient collateral and all borrowers want to borrow more than their home is really worth then you should be happy about HVCC. Otherwise you should punish the offenders and leave me the Hell alone.


    BR: You make a number of valid points.

    However, the bottom line remains: The industry, thru their corrupt appraisal practices, contributed mightily to the boom and subsequent bust. They were grossly irresponsible, and now need to be treated like the idiot children they are.

    We all have to suffer because of criminals, including corrupt appraisers

  76. [...] critique yesterday of the lobbying efforts of the commission sales people’s organization (Realtors and Mortgage brokers) included [...]

  77. [...] of issuing beat downs to adversaries that he regards as dishonest, has been all over the story, and Yesterday produced documents about the NAR’s and the National Association of Mortgage Broker’s battle against [...]

  78. patient renter says:

    Why does Lawrence Yun still have a job?

    Like Lereah before him (who has admitted he was a worthless lying shill), it’s not Yun’s job to make accurate predictions – it’s his job to pump housing.

    As for the HVCC, it’s clear there are problems with it, but it’s also clear that the industry wants a return to the prior status quo where fraud was rampant and prices took off.

  79. musakpaka says:

    I have read the June 23rd statement from NAR economists Lawrence Yun myself (May Existing-Home Sales Continue Rising Trend). He shows genuine concern for the potential danger of any delay in the housing market recovery. However, he seems too quick to attack the current appraisal process in the housing market by calling for local appraisers to do the job instead. The same article quotes the NAR President, Charles McMillan saying:
    “To maximize the potential for a housing recovery and subsequent economic recovery, we need realistic appraisals that are based on proper comparisons and done by a local specialist,”
    It is this call for “realistic” appraisals and “local specialist” that concerns me as well. We must not forget that the cause of the current housing mess is due primarily to the inflated valuation (driven by speculation and boom-bust life style) of real estate that pervades the housing market in the U.S. Obama’s reform agenda is a step in the right direction, though I believe it may only be sweeping part of the problem under the rug. There is an urgent need to fix the current process of valuing real estate in a sensible manner. A permanent solution will need the buy-in of U.S. policy makers to gain any ground. Elena Panaritis, former World Bank economist and the current director of Panel Group mentioned in her blog that current policy propositions to solve the housing mess have not attacked one of the underlying problems: an inefficient and in some cases, defunct property registry system. Just as developing country economies are crippled by insecure property rights and inefficient property-rights institutions, ushering millions into informal markets, so too will be prosperity in the U.S. be choked by a property right system that is not anchored in a stable, realistic valuation of property. Appraisers and real estate agents corporately have an incentive to inflate valuations. Leaving property value assessment in the hands of appraisers and speculators is irresponsible behavior for the world’s leading economy.

  80. [...] is a brief excerpt from his post: I called that a thinly veiled hint for “friendly” i.e., “corruptible” appraisals. I did [...]

  81. mbscms says:

    The Home Valuation Code of Conduct (HVCC) is not the correct solution to prevent mortgage brokers and loan officers from putting undue influence on appraisers. These days lenders use Automatic Valuation Models (AVMs) as well as other intelligent technology to determine if the appraisal they are reviewing seems out of sorts. Additionally, lenders review the appraisals so closely and have so many additional criteria that they want included in an appraisal. As a result it is pretty easy to see when a number just doesn’t jive. If their data leans to a different valuation than what the appraiser has provided, the under righter will send the report back to the appraiser to reconcile and provide additional information. Often if the reviewer at the bank sees a possible problem, they then send the original appraisal out to another appraiser for a “field review”. Lenders have created “blacklists” for appraisers that they have lost confidence in and no professional appraiser wants to be on those lists. The good ones keep their names clean and the bad ones are eventually weeded out. As you can see there are many ways in which the industry can regulate itself.

    The HVCC actually takes steps backwards in appraisal quality. Now appraisals are ordered through management companies. They mostly select appraisers on who is willing to do the report for the least amount of money. There is no premium paid for being a designated member of a professional society such as the Appraisal institute or American Society of Appraisers or for how many years of experience you have in the appraisal industry. If you are willing to do it cheap you get the work. It is that simple. And who do you think owns most of the management companies? The lenders do! Chase owns Quantrix. Wells Fargo owns RELS. Etc. They now get to make a huge profit on the appraisals where before they did not. Previously an appraisal in our area would typically cost around $300 for a standard single family home. Now the borrower is charged $375- $400 and a premium if the home is worth more than $500,000. The appraiser, who used to get the full $300, is now paid on average $225 for the same report with many management companies paying significantly less. In the past a mortgage broker might call an appraiser to do a pencil check on a value for a possible loan. The media would have you think that every broker and appraiser was in some sort of collusion to just “make a value”. That communication between the two was all bad. However, experienced participants recognize that an unrealistic value will never get past the lender review process. As a result, good brokers really want a realistic preliminary value. By having the ability to communicate early in the process, all parties can save a lot of time and money on deals that have no shot at meeting the loan to value requirement to make the loan. Now, appraisers are performing appraisals on loan applications that never had a chance to close in the first place. The appraiser can’t discuss the value with anyone. Just go out, make the inspection and turn in the report. Forget the fact that many of these appraisals are being performed by appraisers who are still wet behind the ears. The lender still makes money on the appraisal fee even if the loan never closes. The borrower, who often can’t afford the cost anyway, is out upwards of $400. The process is almost criminal in my mind.

    The HVCC is driving Mortgage brokers and appraisers out of business. The advantage of going to a broker is that they can shop a loan to different lenders to get the best pricing and they can cut their commissions much lower than what a large lender might be willing to negotiate. Now the broker no longer has control of the appraisal. If he finds a better deal for the borrower after the application process has started, he will need to order a second appraisal from a second management company. How can they borrower afford to keep paying for more fees? Why would they take the chance on a mortgage broker? Again, the media might tell you that the appraisals are portable, but at least 75% of the time they are not. Often when they are released too much time has elapsed for the better deal to be had. As an appraiser, the loss in fees is devastating. The HVCC is good for big business but is terrible for small business. A one man shop can not compete with a large appraisal management company. Imagine if you were an ethical hard working professional and one day, by the swipe of a pen from an either ill informed or politically motivated Attorney General (Andrew Cuomo), all of your hard earned business relationships were taken away immediately. That is what has happened in this case. It is simply amazing how these large institutions have just emasculated the little business owners. Our politicians talk about how in America there is opportunity for all and that our foundations are built on the backs of the small businesses. The reality is so different. Small retail can not compete with Wal-Mart, Target or Home Depot. Small appraisers can not compete with AMCs and mortgage Brokers can not compete with the likes of Wells Fargo and others.

  82. [...] Barry Ritholtz uncovers an attempt by the realtors’ and mortgage brokers’ associations to fight appraisal reform.  Some nerve!  (The Big Picture) [...]

  83. [...] overvaluations (Ritholtz points out that they are doing so right now, even to the point of saying the National Association of Realtors and Mortgage Brokers’ Association may be “pro-fraud…) and are the only customers for appraisers, the choice is between providing the highest number in [...]

  84. ComplianceXper says:

    You’re brain dead if you think it doesn’t take an appraiser who is familiar with the neighborhood to give an accurate appraisal. You’re also about as sharp as a marble if you think a foreclosure that needs 40K in improvements just to be habitable is comparable to a house up the street in “tip-top” shape. Inexperienced or lazy appraisers will take those uninhabitable properties into consideration without doing their homework simply because they are selected based on price of appraisal alone now-a-days, not their level of experience or expertise. When you’re dealing with peoples lives and finances, it’s best to enlist someone who is familiar with the neighborhood and has the most experience, not the greenhorn who’s willing to charge half price. I don’t disagree that there are unscrupulous brokers and appraisers alike. However, increasing oversight, increasing penalties, and vigorously prosecuting those found to be “pushing” values will solve the problem without screwing your 90 yr old neighbor out of the extra 20-30K they’re flushing down the toilet when property values aren’t properly determined. The current bust was caused by sub-prime lenders who pushed appraisals internally for commissions. This is a case of bailing out the big guy and crucifying the small guy who played a very small role. After reading this, it’s apparent that you don’t know much about the business. Get your facts straight before adding your 2 cents.