Greedy appraisers, who put lofty valuations on properties to please lenders and line their pockets, played a large role in the housing bubble. And the fallout continues: On Jan. 29, a former Beverly Hills real estate appraiser was sentenced to three years in federal prison for her role in a multimillion-dollar scheme to profit from inflated property values. That came on the heels of the arrest of a father and son appraiser team in Laguna Beach, CA charged with altering appraisals to inflate home values by up to $40,000.

In fact, a closer look at the industry and its scandals reveals a “Godfather”-like underbelly, complete with death threats on public officials and sting operations.

The conflicts have led to the increasing use of appraisal management companies — middlemen that are supposed to act as a firewall between lenders and appraisers. But for millions of homeowners, the issues still linger.

Just ask the owners of the quaint, but extremely moldy Denver home that apparently appraised for about $370,000, despite comps suggesting a value at least $100,000 less. The 2-bedroom home ultimately sold last summer for $237,000.

How did that happen?

Some of the cases working their way through the courts give a glimpse of the back-door dealing that went on. Landmark Equities Group, the family-owned appraisal firm being charged by the California DA, for example, brazenly had an on-site office at a mortgage broker’s facility. The appraisers, James Merritt Eaton, 60, and his son Brian Chandler Eaton, 28, secretly changed data on staff appraisers’ reports, allegedly to deliver the outcome the loan officers wanted.

In the case of eAppraiseIT LLC, a division of title company First American Corp., New York State Attorney General Andrew Cuomo charged that the unit gave in to demands for higher appraisals to secure more of Washington Mutual’s business. In 2006 and 2007, the appraiser did 262,000 valuations for Washington Mutual over an 18-month period, and had a total $50 million in earnings, Bloomberg News reported.

Now, that’s not to say all appraisers are corrupt. In fact, 11,000 of them signed a petition protesting the pressure and unethical practices. But the bad apples have given the whole profession a black eye.

Thanks in large part to Cuomo, Freddie Mac and Fannie Mae last year adopted the “Home Valuation Code of Conduct” to counter such abuse. The code says that appraisal management companies, which are paid by the lender out of the appraisal fees collected, must act as a liaison to keep appraisers and lenders from having direct contact on Fannie and Freddie-backed loans.

Needless to say, not everyone is pleased. In one extreme case, an appraiser was arrested and held on $500 million bail in December after allegedly threatening to shoot New York AG Cuomo. The man was “apparently upset over some of the actions office has taken regarding cracking down on mortgage-related fraud,” the New York Post reported.

(It should be noted that some believe that Cuomo, former HUD secretary under President Clinton, was largely responsible for the subprime mortgage crisis. And in 2004, he joined the board of AMCO, a Cleveland-based appraisal management company).

Some say the appraisal management companies (AMCs) may only make things worse, after all, some of them are owned by banks. (Landsafe, an AMC, is a subsidiary of Bank of America). The well-known New York appraiser Jonathan Miller, CEO of Miller Samuel, calls it all “an accident waiting to happen.”

Although the HVCC is intended to ward against improprieties, it is not fail safe. In fact, the code still allows banks to be involved in the appraisal process. For one, lenders can still use in-house appraisers, and are “responsible for selecting, retaining, and providing for payment of all compensation to appraisers.” It’s right in the guidelines on Freddie Mac’s website, with the caveat that the loan production staff is not to have direct involvement in the selection of an appraiser or discuss valuation with the appraiser or AMC.

The biggest concern is that the use of AMCs opens the door to appraisals being conducted by far-flung appraisers unfamiliar with the local market, which in turn will cause more erratic valuations.

“The problem is that anybody with a state-issued appraisal license has the exact same level of qualification to appraise here, whether they live in New York or Buffalo or Albany or Rockland County,” Jeffrey Jackson, co-founder of New York-based appraisal firm Mitchell, Maxwell & Jackson, told The Real Deal after the code was passed last spring.

“The appraiser is just the first step in the process, yet we are taking all the blame,” Portland-area appraiser Burr Robson told HousingWatch. “I had the same clients for literally 15 years until HVCC. I now have to fight for appraisal work from AMCs, and my income has fallen 67%. I am worried that I’m going to have to sell my house.”

And there’s a new concern for some homeowners and lenders: low-ball appraisals.

Walt Molony, spokesman for The National Association of Realtors, one of the most vocal critics of the code, said out-of-area appraisers often lead to “apples to oranges” comparisons, resulting in many valuations coming in below the price agreed upon between the buyer and seller. “In an environment where prices have declined over the past three years, this is absurd,” huffs Molony. “It has caused a rise in contract cancellations — not exactly the best way to solve the problem, particularly when homes are selling for less than replacement construction costs in much of the country.”

In the end, there will always be the temptation to give in to pressure to win repeat appraisal business — even if the pressure may not come in the form of a severed horse’s head under the bed sheets. It might be something as simple as the boss of a New York appraisal management company — let’s name him “Don CordeLoan” — saying, “I’m gonna make him an offer he can’t refuse.” In essence, work for us, our way, or don’t work at all.

Some industry watchers say appraisers should be better regulated, but setting up appraisal management companies as the intermediary has the potential of re-creating the same problem we’re trying to escape. As Michael Corleone once mulled: “If history has taught us anything…”
By Sheree R Curry

As I type this I’m sitting in the Trump International hotel with a beautiful view of the strip — But in about 10 minutes from now I’ll be sitting in the sports book with an even better view of dozens of TV’s with all of the basketball games.

If you love the sport of basketball, I highly recommend you come to Vegas one year for March Madness. There’s nothing like it.

This place is a complete madhouse where everybody is going crazy.

People are drunk as can be, throwing hundreds of dollars down on the craps table and common sense has completely gone out the window.

In a nutshell, it reminds me of the housing crisis, where people went nuts and threw caution to the wind. The good thing about Vegas is that tomorrow morning people will only wake up hung over and a few hundred dollars poorer… but the real estate investors who went crazy have ended up bankrupt, losing their life’s savings and, ruining marriages and families.

I’m very thankful I’m not one of them. It’s because I’m very conservative and because I follow my 3-step formula.

Here’s what my 3-Step Real Estate Investing formula is all about:
■Step one is wholesaling.
■Step two is lease options and sub-2 deals that I sell on a rent to own basis
■Step 3 is my buy and hold properties that give me cash flow.
Step one is my cash-now strategy. That way, I always have cash coming in the door. But, I don’t want to be wholesaling when I’m 80 years old so the whole purpose of step one is to give me cash to live on and to pay down my rental properties.

Step two is for larger paydays. I get a small option fee upfront but I get the $30,000 paydays on the back-end. Step two is used when I don’t want to hold a property for the next 30 years and to help me pay day my properties quicker.

Step 3 is the “holy grail” of real estate investing. In my opinion this is what we should all strive to achieve — $10,000 a month in passive income and ten or more properties owned free and clear. But to achieve step three you have to do steps 1 and 2 and pay down the mortgages on the properties over time.

Most importantly, you will be doing all three steps at the same time. Because, if you’re a conservative investor who properly evaluates all of your deals to make sure the numbers work… if you never speculate and always make your money going in… then a few years from now you can have a large passive income stream for the rest of your life.

In fact, I just worked with an investor who now has $9,000 a month of passive income. He doesn’t have a “job” and he doesn’t even do that much investing anymore. He’s content taking it easy, and thanks to his smart planning, that’s exactly what he can do.

Alright, it’s time to go watch basketball. Remember not to go “crazy” with investing and use smart and conservative planning. Save the craziness for Vegas…

Jason Hanson

Some homeowners have a long laundry list of to-do repairs and, interestingly enough, many of those items don’t get addressed until (or if at all) it’s time to sell the house. In hot real estate markets, repairs are sometimes not done before the sale. Remember bidding wars over properties that needed work? Well, today sellers are looking for the advantage that makes their home stand out. Even though housing inventory declined toward the end of last year, it’s expected to rise as more foreclosures tumble into the marketplace this year.

While fixing up a home to sell can be costly, there are some ways to reduce the damage to your wallet. Cheryl Reed from Angie’s List spoke to me about important repairs that shouldn’t be overlooked. They are: changing your furnace air filters regularly, fixing leaky faucets/toilets, repairing caulking issues in the bathroom and defective electrical outlets/wiring.

“Our experts in the heating ventilation air conditioning industry tell us that 60 percent of all their service calls start because it’s a dirty filter issue. If you have a dirty filter, it affects the efficiency of your furnace,” says Reed. She says that it’s a simple and easy repair that improves the air quality and saves you money.
“You can save about $100 a year if you just change those filters when you should.” She recommends checking your air filter every time you get your energy bill. “If it’s dirty and you can tell, you can see it; just switch it out. You can buy a number of air filters ranging from moderately good to really expensive and high efficiency, in terms of cleaning the air. You have a number of different options, depending on your budget,” says Reed. She also says, depending on health conditions of those living in the home, changing filters more frequently might be necessary.

The second repair is annoying and easy to spot. “If you’ve got a leaky faucet or running toilet, that’s going to cost you,” says Reed. “If you don’t get it fixed you’re going to be paying more and more. It can also lead to mold damage. It can lead to a loss of your cabinetry—the flooring in your cabinetry can be rotted away and that can affect your floor underneath and the walls. So you can have a big issue if it’s not fixed soon,” says Reed.

If there are problems with your home when you begin to show it, buyers will spot them. Reed says, “People who come to your house to check out whether they’re going to buy it or not are looking really closely and they’re listening really closely too.” With plenty of housing inventory on the market, buyers are likely to move on if they feel the house needs a lot of repairs.

“You have to put forth your best impression. These small relatively inexpensive fixes are really important,” says Reed.

Dirty tiles and damaged caulking can send a message to buyers that the house may be in need of even bigger repairs. “You’re first going to have an aesthetic issue and second that’s an indication that you’ve got a problem that could lead to mold and nobody wants mold in their house anywhere at all—it will grow if you don’t have proper seals in your bathroom,” says Reed.

“Those are things that you can see every day—sometimes we get so used to seeing them that we forget about them,” says Reed. However, buyers don’t.

Reed offers this advice, “Pretend you’re going to try to buy your own home; what do you see that you wouldn’t tolerate?” She says it’s worth it to take the steps to fix the problems. Buyers don’t want to fix those problems any more than sellers do. Check for defective outlets. Electrical problems are not only irritating but also can be very hazardous. “An electrical fire can destroy your home,” says Reed.

Who should do the job? Of course, saving money is always key. Reed says some of these repairs might be suitable for a handyman but she cautions homeowners to be sure that the level of the repair matches the expertise of the person you hire.

“You’re going to pay more in the end if you don’t check out the person you hire to help you. Make sure that person has a good reputation and if it’s required for him or her to be licensed in your area, you really should a licensed person, even if it’s more expensive,” says Reed. Reed says, you may pay more but you’ll get the job done right the first time.

by Phoebe Chongchua

One of the key skills you’ll need to learn as an investor is how to structure deals. When you get really good at this, you’ll be able to pull some real magic tricks out of your hat and profit from deals that other investors wouldn’t touch because they can’t figure out how to make it work. I’m not there yet…I’m definitely still in the learning stages. I spent my first year in real estate investing only making offers on bank owned properties, but once you deal with private sellers it is an entirely different ball game. In fact, I’ve dealt with lots of rejected offers from private sellers over the past several months. Sure, sometimes the sellers simply aren’t motivated enough, but I also have to consider how I can structure and present my offers in such a way that I can increase my number of accepted offers.

In case you’re in a similar boat, I thought I would share a few tips that I’m putting into practice that I’ve received from my mentor as well as fellow investors with several more years of experience under their belts working directly with home owners:

#1: Always provide a written offer

It’s easy to think that you’re saving time by giving sellers verbal offers, but frankly everyone likes to “see it in writing.” Regardless of whether you think your offer will be accepted or not, put the offer in writing and allow the seller a chance to review it and give it due consideration.

#2: Remember cash isn’t always king – give options!

In the beginning, all I would make are low cash offers thinking “Cash is king, right?” Well, yes and no. It can be king for some sellers, but not for others because it really depends on the seller’s situation. Be sure to give the sellers options. If you ask the seller some key questions (e.g. how much is owed on the property, why they are looking to sell, what they plan to do with the money after they sell) you will be able to determine what types of deal structures could possibly work. For example, your written offer can include a few different options:

■Cash
■“Subject to” (liens remain in place and you take over the payments)
■Seller financing
■Combination of “Subject to” and seller financing

#3 Consider an option contract

If your intent is to assign the contract and the seller just doesn’t seem to want to meet you at a number you’re 100% confident with, consider an option contract at the sellers price and just go out there and see if you can find a buyer within the option period (get at least 90 days). There’s no risk! If the seller’s price is completely unreasonable, you don’t need to waste your time….but if its just a little bit too high for your comfort level, go ahead and get that option agreement signed and see what you can do with it.

#4 Consider a partnership

My mentor gave me an example of a deal he did where there was substantial equity in the property but the home needed a lot of work. After a rehab, it was going to be an excellent home to sell to a retail buyer. What he did was set up a contract with the seller and they agreed to rehab the property, market it, sell it, and split the profits. The seller paid the mortgage and carrying costs while the rehab was completed and they both made a nice profit when the property was sold. A win-win for everyone.

#5 Always follow up

Persistence pays. Even if the offer is rejected now, the seller may have a change of heart later. Be sure to follow up a few months after you’ve made the offer and check in to see how things are going. I’m currently working on a deal with a seller I made an offer to back in November! This is more common than you’d think. Don’t miss out on deals because of a lack of follow up.

by Shae Bynes