States Want Appraisers to Play Ball

California and Nebraska couldn’t be more different, but both clearly want their states to be more like the fictional town of Lake Wobegon – a place where all the men are good-looking, all the children are above average and all properties appraise at or above their sale price.

Parts of California Assembly Bill 948, which was signed into law in September, read like something from the satirical news site The Onion. The statute requires the state’s appraiser enforcement bureau to assign a scarlet letter to complaints of “low” appraisals (fraudulently high appraisals aren’t given the special status). These “low appraisal” complaints are assured to be from sellers and brokers who’ve had their deals torpedoed by an appraisal that failed to support a sale price.

As for the state’s buyers? Well, for their troubles, they get an informational flyer and an appraiser with a newfound fear of the seller.

In Nebraska, that state’s Real Property Appraiser Board recently refused to automatically dismiss a complaint against an appraiser by a salesman working for one of the nation’s largest home builders. The aggrieved salesman accused the appraiser of colluding with unnamed co-conspirators to undervalue new homes the builder was selling. It also contains threats of future complaints if certain specific values aren’t met.

Said the accused appraiser: “[The builder] filed a grievance against me… and threatened to file a grievance every time I or others appraised below purchase price.” This appraiser may have also committed the sin of not having been hired by one of the builder’s affiliated lenders.

Back in California, the new statute, which bears the fingerprints of the state’s powerful Realtors lobby, coddles sellers for what appear to be practical reasons.

In the Golden State, sales commissions on both sides of the transaction are typically paid from the seller’s proceeds at closing; hence, both the buyer’s broker and the seller’s broker need the sale to close to get paid. They don’t want heretical value opinions blowing up their commissions, even if the buyer benefits as a result.

The new fraud-enabling statute clearly places a sword of Democles over appraisers’ heads. The only acceptable outcome, should the appraiser not wish to draw special attention from the state’s licensing bureau, is one in which all properties appraise at or above their contract price. “Low” property opinions have somehow become the bête noir of self-styled appraisal reformers, but appraisal fraud historically occurs with inflated “high” appraisals. The new law also fast-tracks real estate brokers to become licensed appraisers.

The California law also hides behind a specious social-justice argument. It names protected classes, but the umbrella of protected classes is so broad that it includes literally everyone in the state.

The seller must merely possess a gender (including, but not limited to, pregnancy, childbirth, breastfeeding, and related conditions, and gender identity and gender expression), sexual orientation, marital status, medical condition, military or veteran status, source of income, ancestry, disability (mental and physical, including, but not limited to, HIV/AIDS status, cancer diagnosis, and genetic characteristics), genetic information, age, race, color, religion (including religious dress, grooming practices, or both), national origin (including language use and possession of a driver’s license issued to persons unable to provide their presence in the United States is authorized under federal law).

Meanwhile, back in the Cornhusker State, the appraiser – he asked that his name be withheld – has had to hire an attorney and mount a legal defense against vague charges made by the home builder’s sales agent.

“The grievance raises no issue with the appraisal itself,” wrote the appraiser’s attorney, Richard P. Jeffries of the Omaha law firm of Cline Williams Wright Johnson & Oldfather, in a letter addressing the complaint.

“Ominously, the complainant explicitly reserves the right to lodge a future grievance against [my client] if he should ever submit an appraisal the complainant finds, without apparent regard to the facts, to be $5,000 to $10,000 ‘low.’ This should concern the Board.”

The human comedy never fails to disappoint.

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By Jeremy Bagott, a licensed appraiser and former newspaperman, sends up a warning flare in his 2019 book “Dispatches from the Cosmic Cobra Breeding Farm.” He takes the reader deep inside a tiny Washington, D.C., foundation that has managed to have its copyrighted code of conduct enshrined in federal and state law. All 50 states, even the U.S. territories of Guam and the Northern Mariana Islands, now enforce it. The nonprofit, known as the Appraisal Foundation, has parlayed the arrangement into a lucrative publishing cartel. In his journey, the author uncovers a troubling trend deep in the plumbing of government.

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Jeremy Bagott

Certified General Real Estate Appraiser at Bender Rosenthal Inc

Jeremy Bagott is a real estate appraiser and former newspaperman. His most recent book, “The Ichthyologist’s Guide to the Subprime Meltdown,” is a concise almanac that distills the cataclysmic financial crisis of 2007-2008 to its essence. This pithy guide to the upheaval includes essays, chronologies, roundups and key lists, weaving together the stories of the politics-infused Freddie and Fannie; the doomed Wall Street investment banks Lehman and Bear Stearns; the dereliction of duty by the Big Three credit-rating services; the mayhem caused by the shadowy nonbank lenders; and the massive government bailouts. It provides a rapid-fire succession of “ah-hah” moments as it lays out the meltdown, convulsion by convulsion.

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