At least in my state there is no incentive for appraisers to do this. 99% of appraisals get assigned to random appraisers. There is no such thing as “repeat business”, at least within the realm of your typical home sale where the buyer is financing through a bank.
In California, at least at the time, Realtors called the Appraisers they knew could be a little generous with the numbers to make the clients happy. Speed-dial. Inflated numbers were easy to make plausible, and as time went on, the cycle became self fulfilling.
Appraisers knew this, they got lots of easy business for an afternoon's worth of work, and grew their businesses. Realtors would shrug and say "That's what it appraised at." Banks were happy. Sellers were happy. Lots of money. There was no natural regulation or push-back stopping any of this.
Source: friend made lots of money doing this at the time. They probably made out better than the Realtors.
Yea I believe that. In my state (Georgia) the randomization rules only came about after the '08 crash. I come from a family of appraisers, oddly enough, so I have an unusual amount of insight into the industry for a simple software engineer. Prior to the new rules my family's company had a set of clients (banks) that they would get business from, and they had to reach out and do marketing/sales/shmoozing to get new clients, like any other service business.
After the new rules, banks just bid for an appraisal into a black box and it gets fulfilled ~randomly. The family rolodex became pretty useless. So the playing field was leveled, and it's certainly a fairer process with better overall results for homeowners, but it also kind of neutered the whole appraisal industry since there's not really a good way to compete anymore.
Kind of going on a tangent here, but the appraisal industry is one of those "silver haired" industries that is not able to replace it's older workers who are retiring. It's unclear what the future holds for appraisals, but it seems inevitable that there will be some sort of pivotal change in the industry in the next decade or so.
> Appraisers they knew could be a little generous with the numbers to make the clients happy
This can only work if only very few appraisers in the area are overvaluing. But if that works, why wouldn't all of them get in on the game? And if most of them do, it falls apart because the actual sale prices will be out of line with the appraisals. So, it doesn't really work outside of edge cases here and there.
There are definitely laws and lender requirements that should make appraiser selection somewhat random and their findings somewhat neutral, but based on my house buying experience I don’t believe for a second that they’re effective. We made a bunch of offers and somehow the appraisal was always right at the offer price or ~5-7k above. I’m convinced that the appraisers somehow have knowledge they shouldn’t and covert/indirect mechanisms exist to motivate them to play ball to make deals go through.
Besides small sample size giving me a skewed sample, the other explanation I can think of for this is that appraisal is a fairly exact science and realtors have mastered pricing based on it. Considering the volatility of my market, lack of comparable sales, and the IQ of the realtors I’ve met that seems laughable.
> somehow the appraisal was always right at the offer price or ~5-7k above.
Yes, this is pretty normal. Contrary to popular belief, appraisers don't have any sort of special data or processes that allow them to determine the exact value of a house in any given market (because such a value does not exist). An appraiser is working for the bank and simply serves as a risk mitigation officer. Their job is not to answer "what is this house worth?", it's to answer "is the deal you're lending money on within reasonable bounds?". So when the appraisal value comes in at or around the sale price - it's just a simple "Yes". And when it comes in somewhere else, it's a "No".
There is generally zero incentive for an appraiser to inflate prices (today, this was not always true in the past).
The housing market is vast and complex, without question. And still, the reason that prices go up is overwhelmingly the simple fact that buyers are willing and able to pay those prices.
