Speaking from the P.O.V of a mortgage agent, I think it’s going to be tough for a lender to blame an appraiser for inflated values. That’s because part of the underwriting process by the lenders is a very close scrutiny of the appriasal. If a wrong box is checked on an appraisal we get a condion asking the correct box to be checked. They really go over them with a fine comb.

The lenders also really scrutinize the comps and the adjustments (up and down) used to compare a comp with the subject property. In one instance over a year ago, I had an underwriter decrease the value by about $100,000 because one of the comps was a listing, and during the transaction the comp was listed on the MLS as selling for substantially under the asking price. So, the lenders really scrutinize the appraisals, much to our dismay from time to time, and some lenders routinely knock down the appraised values.

I think that the only defense the lenders can use is that they didn’t review the appraisals carefully, and then they would just be admitting that they are partilly to blame for funding a loan with an inflated property value. So, I think that it will be difficult to win a case blaming the appraisers for inflated value.

As far as how does this affect us, well, I can tell you that all lenders are now looking very hard at value. Some lenders will automatically knock down the value 5% if a property is in a county that is classified as “declining market.” But if a property is in good shape and is in a county where values are holding steady (like San Francisco, Marin, and most of the penninsula) it won’t affect us very much, if at all.

California appraisers say they’re pushed to inflate home prices

http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/11/03/MN10T5DS5.DTL