Are Real Estate Appraisers To Blame For The Recent Real Estate Crisis In America - Research Paper Example

An immediate caveat to saying that one segment of controls and regulations is responsible for a systemic crisis that affected not only a market but also the entire world is that this responsibility is not all encompassing. The definition of systemic is derived from the word “system,” which refers to several (more than one) distinct parts. Thus, to assign all blame to one part of the system implies that one part of the system was actually capable of creating a crisis. This assumption, along with the assumption that real estate appraisers were solely responsible for the crisis, are false; however, the issue of whether they played a significant role in the market failure is an important one to consider not only for historical purposes, but also for the purposes of policy and economic reform.

From the literature since 2008, it is the finding of most experts that real estate appraisers contributed in large part (but not wholly) to the real estate crisis, due primarily to the decentralization of regulatory responsibility. The first component of assigning blame to any individual or group is to understand the role that they played in the system. According to scholars in the field of corporate accounting, significant portions of blame belong to all of the key players (and their respective roles) in the economic collapse.

1 For instance, if it were not for homebuyers and their willingness to take out mortgages that they could not repay, there would have been no mortgage defaults for the financial markets to feed on. These authors also give blame to the issuers of credit default swaps, which were sold to investors as a significant source of income. These swaps, however, began to lose value rapidly when housing prices began to slide. In the middle of these two parts of the system were the mortgage originators, who typically received fees up front and accordingly had little incentive to make sure borrowers did not default on their loans.

A piece of this part were the real estate appraisers, who likewise had no incentive to appraise homes for prices lower than a minimum price needed for a mortgage to be approved. If a real estate appraiser was thoroughly honest in all of its dealings, and it blocked too many transactions, there would be no demand for its services from partners. This element of marketplace competition and an incentive against honesty does not earn real estate appraisers any support among those looking for a major source of responsibility for the real estate crisis.

However, certainly real estate appraisers did not complete their work in a vacuum: it was part of a process (a market process) that led to incentives for certain actions and outcomes over others. Consequently, the notion of assigning blame should extend beyond the circumstances that appraisers found themselves in. One way of doing this is identifying carelessness and negligence in the way in which they carried out their work. One example of this is how real estate appraisers have been accused of actively colluding to raise home prices artificially, which would encourage homeowners to continue to build home equity.

Appraisals would occur on “cursory drive-by inspections and comparisons with nearby homes that had recently been sold or refinanced.”2 These comparisons were done on occasion to homes these same appraisers had valuated months before. If the