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Real Estate — Inaccurate Appraisals


A problem we have been dealing with is the inaccuracy of appraisals. When the market crashed in 2008 the banks changed the appraisal system to avoid false inflation. Prior to the recession each appraiser was designated a specific area/town. After analyzing reasons for the crash the banks determined the appraisers frequent contact and friendships with real estate brokers led to inflated appraisal values and became a contributor to the market bubble. In order to avoid this from happening again they changed the system. The appraisers are now designated by a pooling system. An appraisers name goes in to a hat, and they are picked randomly. Problem 1 solved. The likelihood of seeing the same appraiser twice is now rare. Therefore, friendship interference is eliminated. However… a bigger problem has arose. Problem 2. The new appraisal system has forced appraisers from all over the state to value property in local markets they know very little, if anything, about. The lack of local knowledge has begun to cause major problems. Buyers are losing deals because out-of-town appraisers undervalue a property in a location they are unfamiliar with. For example in Charlestown, the appraiser who just drove in from Worcester may not know the difference between Monument Ave and Monument Street (I have seen this). In a city like Boston, a few blocks can make all the difference.

Ultimately, an appraiser can/does control the sale. It may not matter that the property had 50 people through the first open house, or 6 offers on it. If the appraiser feels it is over-priced, the deal is dead (unless the buyer has a substantial downpayment or the seller reduces the price). The new pooling system works in theory, but not in practice.

Adam Geragosian