Appraisals Overvalue Real Estate, Study Finds via NYTimes.com

In the recent economic crisis, commercial landlords and lenders discovered myriad ways to find themselves on the brink of financial disaster. Excessive purchase prices — many based on faulty property appraisals — were a major factor, specialists say.

Now, a new study has found just how inaccurate these appraisals can be. Using data from thousands of securitized real estate bonds in which the properties were foreclosed on and liquidated, the study, by KC Conway, an executive managing director at the brokerage firm Colliers International, and Brian F. Olasov, a managing director at the law firm McKenna Long & Aldridge, found a wide discrepancy between the appraisal values and the eventual sales prices of the properties.

“This study confirms what many of us have thought but heretofore have only known anecdotally: That appraisals are not very accurate,” Mr. Conway said. It was published in the winter edition of CRE Finance World, the publication of the CRE Finance Council, and is based on data from the research company Trepp L.L.C. for March 2007 through September 2011.

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