The $10,000 Mistake: When Agents Pretend to Be Appraisers

Is an appraiser's value of your house different than the real estate agent's value? This is a cautionary tale, y'all, and also lots of good information for you if you are an agent or an appraiser, or if you're looking to buy or sell. So get you a glass of wine or a cup of coffee and come along with me on a little tale here. There was a lady who wanted to buy a house that she thought she was going to flip and make great oodles and scads of money, just like she saw on HGTV. GTV. So she called an agent and said, "Hey, after I do all this backbreaking work, what's this house going to be worth?" And the agent made up some numbers. And then the buyer said, "Oh, that sounds amazing." So she reached out to her bank. The bank, knowing this was a high-risk loan because you're talking renovations and guesses and future markets and whoa, the bank said, "We're going to have to get an appraisal on this." And so they reached out to an appraisal management company AMC, which are mentioned in some of my other videos. You should go learn about why appraisal management companies are a bit of a scourge. But this might be one reason, because the AMC reached out to the agent and said, "Hey, why don't you just do the appraisal? You've seen the house." First of all, what? Okay, so yes, the AMC allowed the agent to perform an appraisal without an appraiser's license. So this agent thinking, "Ooh, I got a big payday coming up," made up some numbers, inflated it, inflated the number for what it was worth in existing condition and what what we call ARV, the after repair value. And so the buyer relied on this information and closed on the house. Then she does 6 months' worth of backbreaking work to make this house cute and brought back to its glory. She finishes the project and wants to sell it. And turns out it wasn't worth what she thought it was worth because she had been given inflated information. Then she finds out that there was no real appraisal done on the property, that the appraisal management company had allowed the real estate agent to provide a number and allowed that agent to impersonate an appraiser. So the property was not worth what it should have been worth, and the lady lost a great amount of money. She then did what a lot of savvy people do and called who? The lawyers. And who wins when you call a lawyer? The lawyers do. That's right. So the lawyer started digging into this and said, hang on just a cotton-picking minute, this real estate agent did not have an appraiser's license yet gave an opinion of value, which is something that only a licensed appraiser can provide. And then they discovered that it was the appraisal management company who had shoehorned this whole deal because they were going to make more money on an inflated number. At the end of the day, the real estate agent got fined $10,000. Didn't lose their license though. Shame on that, but lost $10,000 in a fine. The appraisal management company, according to the article that I read, did not receive any negative consequences. Who did receive a negative consequence in that whole messy little story there? Mm-hmm. Write it in the comments. You know, it was the consumer. And if you boil down what it's worth to have a pocket card for a real estate professional, even if it's digital, I know I'm old, or an appraiser's license, you know what our main job is in North Carolina and in other states? It is to protect the public trust. It is to protect the consumer from bad behaviors like this one. That license should mean something. It should mean that you understand what the scope is of your role and the scope of the role of others. Now, one thing you'll notice here is I'm not referring to the real estate agent as a REALTOR® because one little-known fact is that appraisers can be REALTOR® members. They often are members of the trade association because we all have different roles, but they're intertwined in protecting of a consumer in protecting property rights. The real estate agent in this case was a realtor, which means they're a member of the trade association, but they did not have an appraiser's license. There are some realtor agents who do have an appraisal license. You can have both, but you don't necessarily have both. If you draw your little Venn diagram, there are appraiser realtors, agents. There's also appraisers and realtors. Now, what is it that a real estate agent can do when it comes to price on your house? Well, you should know that when I do a CMA or a comparative market analysis, I'm not giving an opinion of value. I'm bringing in the comparable data, pulling together a range based on other sales with some adjustments in it to help the consumer figure out their price. And if I've done my job properly, I've got enough data so that when my seller's house has sold to a buyer and the buyer reaches out to a bank and that bank engages an appraiser, if they call me and ringy-dingy, say, "Hey, Leigh Brown, where'd you get that number?" I've got a whole packet of information to provide, not because I'm trying to sway anybody, but because I should be able to defend the information that I gave to my home seller. But my job is not to do the appraiser's job. The appraiser's job is to protect the investment and the capital that the bank is putting into the house. I have found there's a lot of agents that get a little forgetful about this. They think that when their buyer is buying a house with 3.5% down on an FHA loan or 0% down on a VA, they're so excited that the buyer has all the control. Actually, he who has the gold does make a lot of the rules, because if the bank is going to cover 100% of the expense of the house, They should know what they're putting their money behind. If it's an FHA loan and the bank is putting 97 or 96.5% into the house, they should have some assurances that an independent certified appraiser has verified that value because they do want that capital back. And if you want to know why banks want their capital back, you should know that money is fungible and it is a tangible asset. So when I pay back my loan, the bank can take that money to lend to someone else. It's not a dead end. So you got to think about all the players involved. And at the end of the day, if you are buying a house, you as a buyer could ask your bank to make sure that you get a certified residential appraiser, that you make sure you're not just getting an appraiser who's not certified, which is a lower level, or that you're getting an automated valuation. That's a direction a lot of banks want to go in because it's cheap and easy, except that for you, the consumer, you're going to pay the same thing. I want you to have a professional opinion of that value to backstop the contract price that you worked out with that seller with the help of the agents, because it's your money at the end of the day. And if you're a real estate agent, you need to remember that your job is not to protect yourself, although you should be wise and follow the laws and follow the rules. Your main job is protecting that consumer and making sure that they're getting the the best possible information. And then when you do it the right way, you won't find yourself paying a $10,000 fine, which frankly, I don't think was enough because the consumer does real estate so infrequently, y'all. We have to remember that we have a lot of knowledge they don't have. So how about we use it for good instead of for evil? For more information on stories like this or how to hire me as a coach, absolutely check out the captions and the comments, hit the bell to subscribe, watch some more videos, and I'll see you next time.