Consider the fact that one of the most common appraisal techniques used is the Market Value approach. If a minimum of 12.5% of appraisals (25% of the appraisers inflate 50% of their values) are inflated, and those appraisals are used to justify other property sales prices, then those inflated values are used to justify additional inflated values, (etc. etc. etc.) how long does it take before virtually all properties are using artificially inflated comparable numbers to justify sales prices.
It is no wonder that the housing market has taken a downturn. People are paying too much and a lot of them simply can’t afford what they have bought. In addition, this fact alone will have kept many many buyers out of the market unfairly. While you will not see this article on the front page of any newspaper, it is a very big deal. It is fraud. I don’t know a nice way to say it.
I do not want to imply that all appraisers are derelict in their duties. However, when any appraiser accesses past sales data in order to produce comparable values, and that data has been arbitrarily inflated, even the majority of appraisers who are honest and fair will produce appraisal values higher than they really should be. These good appraisers are victims of the fraud just like you and I.
So what should we do about this? Do your homework. Buy whatever you want for you to live in, but don’t buy any investment real estate because an appraisal says the asking price is fair. Buy investment real estate based on its operations and the logical progression of the property. Run the numbers! Get the education you need to understand the analysis process and compile the data necessary to do it correctly. With accurate numbers, you can buy right and not have to worry about what anybody else thinks a property is worth. Pay what you think its worth and not a penny more. The quality of your portfolio will be based on the quality of your purchase decisions. Make ‘em good.