Appraisals Are Causing DamageIt is clear from feedback from avariety of appraisers that there is great debate within theappraisal community as to the veracity of many appraisals and themethodology. It is very clear to me that the methodology iscompletely wrong and that some appraisers just did whatever theywere instructed to do. Just because this is the way appraisersalways did it and it proved totally wrong, is every reason tochange it.In discussions with friends who run banks and sit onboards of trustees of major pension funds, as well as many of mycapital markets colleagues, it is clear that almost nobody believesappraised values any more. They are either too frothy in good timesor overly negative in bad times, but rarely correct. For banks theyare dangerous. In good times they lead to bad lending decisions,and in current times they lead regulators to require banks toforeclose even when the loan is current on interest and theborrower is a responsible owner. Pension funds revalue assets byappraised value in some cases and that undervalues assetscurrently. CMBS resolutions of defaults require appraisals and theyare frequently wrong and lead to bad outcomes. As proof we knowthat each side gets its appraiser and the results are usually verydifferent. As a former lender, I know that it is easy to get someappraiser to gin up whatever was needed to justify a loan, evenwhen the value was known to be too high. The whole system andmethodology is badly in need of new rules and procedures.Appraiserswho responded to my blog admitted that they merely reflect thecurrent thinking of investors- as though there was some universaledict among all investors. How do they explain that some investorsgot out of the market in 2007, while others got in. Which set ofinvestors were the appraisers reflecting. Why do a 10 year cashflow and projected terminal values and discount rates if at thestart you are trying to reflect the current investor thinking. Thatjust proves the projections have to be architected to fit theanswer which was pre determined to reflect current market prices.It is all nonsense. That is why MAI stands for made as directed.The appraisers have actually admitted in several responses to myblog and my column in Hotel News Now, that they do make theirappraisal fit what the borrowers or lenders demand.It is time thatthe Appraisal Institute convene a roundtable to include bankers,investors, pension trustees and underwriters to set new methodologyso that appraisals do what they should, provide a true, independentvaluation with all the potential risks brought to the fore offuture events. We had thought after 1990 and the new rules then,that things might change, but they only got worse. It is time fortrue resetting of the definition of what is an appraisal and how isit to be accomplished to give real ranges of values. I am nottrying to eliminate appraisals, just to make them much moreaccurate and usable so they are not misused as they have been andcontinue to be.