Appraisals are often viewed as the end-all for determining the value of your home. It doesn’t matter whether you’re looking to find the value of your chalet, traditional home, cabin, land, or other type of real estate from the mountains of Murphy, North Carolina all the way to the sandy shores of the coast, fact is, that’s not necessarily the truth.

Appraisals are usually for honest, genuine reasons. Don’t be confused though – an over inflated appraisal of your real estate won’t help sell your property for an inflated value. Then on occasion, they’re for fraudulent reasons. If you’re considering selling your real estate and would like to know if an appraisal would help, you should read this article.

Although con artists and fraudsters have dozens of schemes to steal property and money, numerous schemes rely on inflated appraisals – appraisals that claim the property is more valuable than it really is.

Some homeowners use inflated appraisals to pull more equity out of their home than they have in it. For example, say the owners owe $180,000 on a home that’s worth $200,000, and they want to borrow $40,000 to redo their kitchen. Most lenders will be reluctant to approve a $40,000 loan, because the owners have only $20,000 equity in the home. To get around this problem, the homeowners (and perhaps their loan originator) may hire a "cooperative" appraiser to appraise the home at $240,000, so the loan can be approved.

This may seem like an innocent "white" lie, because the kitchen rehab will probably raise the value of the property, the lender will make a larger loan and earn more interest, and the loan originator will earn a commission. On the surface, everybody wins. However, this is a form of mortgage fraud – it misleads the lender into approving an overly risky loan. It also artificially inflates property values, property taxes, and insurance, making housing less affordable.

Con artists also use inflated appraisals to rip off home buyers and investors. In a recent case in Florida, a company was converting apartments into condominiums and selling them to (mostly out-of-state) investors. The company hired an appraiser from hundreds of miles away to appraise the properties without ever seeing them; the appraiser had no idea what similar properties in the area were selling for. The company fed the appraiser the information that was used to write up the appraisals, usually indicating that the properties were worth anywhere from 30 to 100 percent more than their true market value.

Many of the investors assumed that if the lender (or bank) was willing to loan them the money to purchase the properties based on the values stated in the appraisals, the appraised values must be accurate. Unfortunately, this assumption was wrong. The loan originator was in on the scam with the company that was selling the properties. Together, they were pulling all the strings, misleading both the lender and the investors through the use of inflated appraisals.

For an appraisal to be valid and reliable, it must be unbiased. If you are buying a property and have no clear idea of what similar properties in the same neighborhood are selling for, then order your own appraisal. Hire a reputable appraiser who is familiar with property values in the area and instruct the appraiser that you want an unbiased appraisal. Don’t rely on what the seller or loan originator (or their appraiser) is telling you. That person’s view could be the most biased of all.

Ralph R. Roberts, GRI, CRS is a real estate and mortgage fraud forensics expert and author of Protect Yourself from Real Estate and Mortgage Fraud: Preserving the American Dream of Homeownership (Kaplan Publishing). If you’re interested, you can find out more in his book.

 We’re fortunate here in Murphy that we rarely see fraudulent activity as a result of false appraisals. If you would like a reputable appraiser, please don’t hesitate to ask us to find an appraiser for you. It’d be our privilege to help.

John Poltrock, Certified Residential Specialist – www.MyMurphy.com – Call Toll Free (866) 687-7496 and demand The POLTROCK TEAM!! – JohnPoltrock@gmail.com