# Appraisal scam / sham?



## jamesbe (May 8, 2010)

Everytime I get a new mortgage for a new home my bank asks us to pay for an appraisal.

Last time the bank actually paid for it themselves, they showed it to me briefly but were not allowed to hand it over because they paid for it. The appraisal came in at the same amount we paid, actually I think it may have been a few thousand more.

This time we had to pay for the appraisal, and low and behold it came in at exactly what we paid. 

I've been told this is the norm, so is this a serious sham / scam going on in the banking industry? Obviously the banks and their clients are paying these "appraisers" $300 a pop to come back with the exact same number that the client paid for the home.

Your thoughts?


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## m3s (Apr 3, 2010)

It's not that big of a deal if you don't change mortgage or houses often. There are a lot of fees involved with that

If I was lending somebody $$$ for something I didn't see, I would want an appraisal myself


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## jamesbe (May 8, 2010)

I understand why they want it. But really are they just getting scammed?

The appraisal always comes in at the purchase price!


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## m3s (Apr 3, 2010)

I just had my house appraised, and it was the same as similar houses on the market. The purchase price was years ago so it was not the same at all. The sham is that is doesn't matter what the house is actually worth, but what the market will pay. So in that sense I agree that an appraisal is pointless because you can just look at MLS yourself. The bank probably wants to ensure there are no hidden problems with the house


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## crazyjackcsa (Aug 8, 2010)

We had a 33% downpayment on our house. The bank asked for an appraisal. I said "Screw that!" and they did.


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## LondonHomes (Dec 29, 2010)

I have never paid for an appraisal before. All you need to do is ask the bank to pay for it and they normally do without an issue.

In fact I've never seen the results of an appraisal on my place. I've just been informed that the appraisal came back and everything is ok. In my opinion the bank is getting an appraisal done to cover themselves. They don't want to be lending you 100k on a house worth 50k that your over paying for.


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## Plugging Along (Jan 3, 2011)

I've never paid for an appraisal either. The bank has always covered it. They have always shown it to me but did not give me a copy.

For ours, the price was pretty close to what we paid. In one case, it was much higher (the appraisal)

I do have a friend who buys alot of fixer uppers, and in one of her many, the place was not even close to what she was paying, and they wouldn't finance her for the full amount. I can't remember if she ended up buying it or doing something different.


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## Dana (Nov 17, 2009)

The appraisal is part of the bank's due diligence. It protects them from:
*mortgaging a property that doesn't exist
*getting a 3rd party opinion on the property so that they know the value isn't being manipulted in a non-arms length transaction (this was a common and expensive form of fraud in the 90's)
*the bank is obligated to appraise a CMHC mortgage (as per CMHC)
*making sure the building is sound (i.e. not on stilts - yes it has happened, has a foundation, etc).


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## iherald (Apr 18, 2009)

crazyjackcsa said:


> We had a 33% downpayment on our house. The bank asked for an appraisal. I said "Screw that!" and they did.


I had a 50% down payment, and they made me get an appraisal. Thankfully my mortgage broker paid for it, but still it seemed a bit silly. I did get to keep a copy of the appraisal though.


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## jamesbe (May 8, 2010)

iherald said:


> I had a 50% down payment, and they made me get an appraisal. Thankfully my mortgage broker paid for it, but still it seemed a bit silly. I did get to keep a copy of the appraisal though.


Yup same here, they wouldn't pay for it though because they were paying my break penalty which was much more costly. So win-win for me.

I was told if it was a city home it wouldn't need one because it is a custom build it did need one.


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## m3s (Apr 3, 2010)

I didn't pay for my appraisal but I asked the appraiser if he could send me a copy, and he did. It's my house after all


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## Berubeland (Sep 6, 2009)

Recently, one of the owners of a property I manage wanted to sell it. It's a one bedroom house with a 2 bedroom apartment downstairs. 

We had two real estate agents look at it and do comparables and they came in a $50,000 apart. 

Real Estate Agent 1 did a good job I felt, there were no direct comparables in the area sold recently, she did find 2 bedroom houses for sale and sold and based her pricing on that. 

Real Estate Agent 2 did a terrible job, she compared to 3 bedrooms some not even in the area that sold within the last 2 years. She based her price on that. 

Appraisers are worth the money and real estate agents are not usually appraisers although they do set the market value they give your house. Some are better than other. Agent 1 did a good job IMHO.


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## Barwelle (Feb 23, 2011)

Berube, if you don't mind me asking, which one came out higher?


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## Berubeland (Sep 6, 2009)

The one that was done improperly of course... she was comparing 3 bedroom houses to a one bedroom house. 

Of course, the owner was happier with that valuation than the other one but if he really wanted to sell then is this agent who is going to put her sign on the lawn doing him a service? 

Do you know how many rental listings I would have if I told everyone they could rent their apartments for $500 over value? Would it be ok to just let customers linger for months? Uhmmm no.


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## jamesbe (May 8, 2010)

Got a copy of my appraisal today. The calculated value was $30k more than my purchase price but then round down to the purchase price. I laughed and asked the lender how it could be EXACTLY what we paid? She was pretty honest and said, they just lower it to that value as they do not want to insure the mortgage for more than the purchase price.

So she it basically never comes out above the purchase price. Makes sense.


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## Racer (Feb 3, 2010)

Here's what (little) I know about lender appraisals -- which are quite different from realtor appraisals.

-the big banks have different levels of appraisal types that they order. 

1) the database search appraisal, where the bank reviews comparables that have been financed by that particular bank in the past, 

2) the drive-by appraisal, where they combine a database search with paying an appraiser to drive by the home and eyeball it for visible defects or discrepancies in the borrower-provided information.

3) the full appraisal, which is always done by a certified appraiser. ​
As has already been pointed out, the purpose is not to determine the true and current fair market value of the house. The purpose is to reduce the bank's risk of over-lending and facing a foreclosure situation in the future. So an appraiser doing a full appraiser will wish to reduce their professional risk by appraising the value to match the requested amount (or 20-20% above the requested amount, depending on the circumstances of the loan, and whether it is a HELOC, and whether there is CMHC in place). 

There are 2 reasons for this, according to an appraiser I know -- first, why take on more risk than necessary and risk being made to look a fool by a later foreclosure, or by the vagaries of market fluctuations in the (highly unlikely) event of a regulatory review? Second, if the borrowers wish to borrow more later, then the bank will be forced to use an appraiser again. So that means more business for appraisers.


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