The effect of inflated home appraisals

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A slowing housing market is bringing attention to the issue of inflated [tag]property appraisals[/tag]. While home values were climbing and interest rates were low, this wasn’t a problem. Even if an appraisal was too high, the [tag]market value[/tag] of the home would quickly catch up. But now that the market is slowing down, some homeowners are finding out that their market values are below their old appraisals.

Inaccurate appraisals become a problem when it is time to sell or [tag]refinance[/tag] a house. Homeowners are finding that they have less equity in their homes than they thought. This is especially critical for those who bought homes with no downpayment or those who used all of their equity for improvements or debt consolidation. As homeowners borrowed against inflated and unrealistic values, they now have fewer options when looking to sell or refinance. Some are finding that their home value is less than the amount they have borrowed against it.

It is believed that loan officers put subtle pressure on appraisers to declare a home’s value at or above the buyer’s offer. Without such an appraisal, a deal will almost certainly fall through. Since appraisers depend upon loan officers for their business referrals, it is in their best interest to help close as many deals as possible.