Commercial Grade is a post by John Cicero, MAI who provides commentary on issues affecting real estate appraisers, with specific focus on commercial valuation. John is a partner of mine in our commercial real estate valuation concern Miller Cicero, LLC and he is, depending on what day of the week it is, one of the smartest guys I know. …Jonathan Miller

I think that I finally understand what the problem is.

We just need to go back to basics and make sure that the real estate lenders are being property educated. I recently came across a textbook written for lenders: The Complete Guide to Financing Real Estate Developments (Hardcover) by Ira Nachem ( 2007, McGraw-Hill, New York), List price $79.96. Seemed like a respectable enough book, which is why my jaw dropped and I had to read the following section three times to make sure that I wasn’t imagining things

A section in Chapter 5 with the heading “Influencing the Appraisal”,

Since appraisers want to continue to receive assignments, they generally have a desire to satisfy you, their client. You sometimes can play on that desire and get the appraiser to produce a report with values a bit higher (or lower) than he otherwise would report.If you want to make sure that the appraiser is not undervaluing the property, you should tactfully indicate your concern up front

Do you believe this stuff?!

As I was reading this I kept on waiting for Alan Funt to jump out and tell me that the whole thing was a joke. He didn’t. (I guess he couldn’t since he died in 1999.)

It gets better

A third reason to go against a conservative valuation involves market conditions and competition among lending institutions. When more lenders are in the market, competition for business increasesTo be more competitive, loan officers who receive higher appraised values can make larger loans

Over the years I’ve spoken to numerous loan officers that truly don’t have a clue as to how the appraisal function is supposed to fit into the underwriting process. Unfortunately books like this do little to educate them.

I look forward to reading future books in this series: “Shmearing the Building Inspector” and “Tax Evasion for Dummies”.

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11 Responses to “[Commercial Grade] Lending 101”

  1. Edd Gillespie says:

    Why wouldn’t something as entrenched in the lending industry as pressuring appraisers not be codified into a primer on being a successful producer?

  2. marty tessler says:

    John-the real crime is that they are charging $79.96 for this larcenous advice. Can the FIRREA and state licensing police apprehend this guy and at least grab the book off the shelves or is that a violation of the 1st amendment????

  3. John,

    Are you really serious about educating lenders? Pressuring appraisers to raise values is akin to piling loose dirt on the dike to hold the Mississippi. Anybody who thinks about it can figure out it won’t hold.

    Or maybe you are speaking about educating them not to cheat.

    What, pray tell, is their motivation to learn what you propose to educate? You must assume they want to take responsibility for solving the problems they have wraught.

  4. John Cicero says:

    Ed, I’m sure that most lenders, including the author of this book, do not believe that they are doing anything wrong. It’s just how they learned at the knees of their mentors.

  5. Edd Gillespie says:


    Sorry, I’m not buying that anybody ever thought pressuring appraisers to “hit value” was the right thing to do. It was only “not wrong”, cause no body caught ’em doing it.

    Is it your perception lenders are now motivated to correct what they learned on their knees, or are those the knees are we talking about? It seems business as usual still works to grease the wheels of commerce in banking. And it will continue to do so at least as long as lending disasters, deliberately brought about or otherwise, qualify for taxpayer bail outs.

    I think you are correct about the “doing wrong” part. Hardly anybody does wrong for the sake of doing wrong. “Doing wrong” is mostly done to get some right result, like mucho dollars. Your emphasis brings up the point of the almost overwhelming job this appraisal industry has in educating those who are not salivating to be educated.

    Best get cracking though. This thing is just about to get the better of us – again.

  6. John C. Carlson - CA Certified General Real Estate Appraiser says:

    John & Edd,

    What your both saying has been “business as usual” for my entire 30-year career as a professional appraiser. Along with several other appraiser friends of mine, I’ve been shouting into the hurricane about the impending disaster ever since my market measurements started measuring value declines & inventory increases at the end of ’06.

    I actually had mortgage brokers calling me insisting that the now dead market upswing was “different” from all other real estate cycles that had ever come before. Thats why I divorced most of the “Bill & Ted” mortgage types years ago.

    This type of ilk is only concerned about finding “the” appraiser to hit “the” number & then collecting their commission & getting along to the next deal. As long as our “peers” continue to facilitate these business practices, either stupidly or on purpose, this practice will continue.

    Unfortunately, I don’t think Coumo’s “fix” is the answer. They haven’t answered the question as to how appraisers are going to be selected. I’ve spent years developing my expertise in luxury homes, industrial buildings, etc & then finding reputable lenders to work with. Now I’m going to have to go into a “lottery” for assignments?? This is a boondoggle from square one – but I’m off the subject now.

    Maybe, just mabe, the huge number of loan officers going to prison will wake the lending industry up. My pessimistic view is that, yes, they will wake up, but only until the next upswing when there is lots of money on the table. Then its “business as usual again”

  7. John Carlson,

    I am grateful you alluded to finding reputable lenders. The problem of lenders accepting – no, demanding shoddy appraisal work extends far beyond what Bill & Ted have asked or ever will ask for. It took way more than mortgage brokers to bring this about. Every broker had to sell their goods to a lender, and the lenders in effect said, “Bring it on.” The entire national lending industry was in a feeding frenzy and selling misrepresented junk on Wall Street, knowing that the ratings firms would play along. I get the impression that the rank and file mortgage broker wouldn’t know Wall Street from Wal Mart.

    The frenzy was so pervasive that I’m sure your find of reputable lenders is an extremely small and localized cache. Protect them jealously.

    John Cicero,

    I’m with you in in spirit as far as education-is-the-answer, but I just don’t see the cues of learners your comments might anticipate. Have you any idea where these lenders-in-learning are hiding or why they have remained so passive for so long, even now?

    And then, once these malleable lenders are discovered, what structure can convince (educate) and then support them in their efforts to abandon the wisdom of the lending ages and follow the law?

    Once that is figured out then we have the entrenched cultural obstacles of “greed is good” and “show me the money” to deal with.

  8. […] This post makes me wonder about the whole “Dummies” Series that I have used to learn new things all the time.  I can’t believe they put this in writing!  Below is the post from a wonderful blog called the Soapbox.  The direct link is: […]

  9. Edd Gillespie says:

    I didn’t know this heresy was published in the “For Dummies” series. I thought it was published in a hard cover for those afraid of being exposed as dumb. Is it both?

    Heard an interesting comment about the world wars and other military and economic clashes the US has been engaged in during the last century. Commentator said the east and not the west won all of it. So what does that have to do with appraising real estate?

  10. John Cicero says:

    Just to claridy, this book is not part of the “Dummies” series.

  11. Edd Gillespie says:

    Still stinks though.