Your Opinion Isn't Worth a Hill of Beans

The housing market is a mess, and I have a feeling that we'll be seeing criminal fallout from shady deals coming to light for a long time. For investigators it will be like playing real estate Whac-a-Mole -- if all the moles popped up at the same time.

One area that seems like it will be ripe with ne'er-do-wells is the real estate appraisal industry. Though I imagine most appraisers adhered to the conventions of the industry (even though I'm not sure I agree with those conventions), it seems to me that many mortgage fraud schemes wouldn't have gotten off the ground in the first place without an appraiser who would play along.

Why do I bring this up? Even with all the other shenanigans going on out there -- Citigroup (NYSE: C  ) , Bank of America (NYSE: BAC  ) , John Thain, Bernie Madoff -- the story of this particular convicted appraiser jumped out at me.

This story comes from Cuyahoga County, Ohio, and involves a scheme of falsified loan documents, a fake down payment, and an inflated appraisal. At first, it sounds like the kind of thing that could have happened anywhere across the country. But here's where the case stands out: The prosecutor said that the accused appraiser, Lavon Ivy, argued in her defense that "appraisals of homes are primarily based on opinion."

The problem here is that -- taken apart from the very clear criminal activity that Ivy, 38, of Orange Village, and her accomplices engaged in -- the suggestion that house prices are a matter of opinion probably wouldn't jump out at most people as a crazy statement. After all, what is the value of a home? Is it whatever you think it is? Is it whatever the house next door sold for? Is it whatever KB Home (NYSE: KBH  ) or Toll Brothers (NYSE: TOL  ) say it's worth? Or is it defined by some other factor, like how much you could rent it for?

After a severe housing downturn that has left millions of homeowners underwater on their purchases, maybe it's time to rethink how we value homes so that a statement that suggests prices are a matter of opinion is universally funny. But hey, that's just, like, my opinion. Let me know what you think by stopping by my blog on The Motley Fool's CAPS community.

And while you're at it, check out the opinions from some of CAPS' other bloggers. TMFBent, for example, recently took to task a defense of the government's homeowner bailout program. TMFDeej, meanwhile, talked about the "paradox of thrift." And to cap it off, dbhealy shared a video of The Daily Show's Jon Stewart taking on Rick Santelli and CNBC.

Fool contributor Matt Koppenheffer owns shares of Bank of America, but does not own shares of any of the other companies mentioned. The Fool's disclosure policy has a special soapbox for weekend use.


Read/Post Comments (3) | Recommend This Article (7)

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  • Report this Comment On March 09, 2009, at 12:27 PM, imjustme wrote:

    Hi Matt,

    You are right that many shady deals couldn't have happened without appraiser collusion although "not all the moles popped up at the same time".

    The moles err appraisers that wouldn't play ball often couldn't get work. Banks and mortgage brokers just wanted to get the deal done and if if the appraiser wouldn't hit their value...they would find an appraiser that would.

    I'm not trying to excuse fraud on the part of appraisers but certainly, they were not in the power position in these situations. Banks and mortgage brokers were the puppetmasters.

  • Report this Comment On March 09, 2009, at 6:44 PM, KBHInvestigation wrote:

    Are you the owner of a KB Home? You might be the victim of an appraisal scheme costing homeowners thousands.

    I work with a law firm investigating allegations that KB homes fraudulently sold new homes at inflated prices through pre-determined appraisals. Reports allege KB Homes worked with Countrywide’s appraisal subsidiary, LandSafe, to inflate the appraisal values given to new KB homes.

    KB benefits from the higher purchase prices while homeowners suffer huge losses. If you are a homeowner, join the investigation by sharing your experience. Visit www.hbsslaw.com/kbhomes .

  • Report this Comment On March 10, 2009, at 11:16 AM, spocounty wrote:

    Greetings,

    I started my apprenticeship in appraisal in 2004. If anyone bothered to educate themselves in what it takes to become an appraiser you may be aware it involves about 2000 hours of training under a certified appraiser, aprox. 180 classroom hours, then of course the state boards. The state of WA now requires an AA or BA, depending on the degree of licensing. I do not disagree with the fact that there are unethical, dishonest, and greedy people out there that will take advantage of the uneducated public.

    I now work for an assessers office because I was fed up with lending brokers who wanted me to 'hit the number'. If an appraiser doesn't 'hit the number' enough those crooked brokers or lenders will find one who will. One way to avoid this problem would be to have absolutely no relationship between a lender and appraiser and have no value stated on the appraisal order.

    The best way to avoid the situation the housing market is in is to have an EDUCATED PUBLIC!! Don't buy a house if you number one can't afford it, and two if you have know idea what you're getting into! You wouldn't believe how few people I speak with don't realize how their home is taxed! I've spent hours upon hours educating people on market value, assessed value, tax rates etc.

    So in a nutshell next time you feel the need to BLAME the state of the housing industry on someone, blame it on the folks who didn't take the time to educate themselves on the process. There's a mountain of greed in this country and in order to protect ourselves we need to be educated as well as use a great deal of common sense. In closing I'd advise looking up the definition of Market Value. Willing and able buyer and all that. Don't blame anyone but yourself that you paid too much for your home & can't afford it!!!

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