New York’s Longest-Running Real-Estate ‘Joke’

In a city where walnut-bordered herringbone floors or cast-iron claw-foot tubs or onyx backsplashes can amount to multimillion-dollar differences in real-estate prices, there’s a small group of New Yorkers with quiet, immense power over realty.

They’re the appraisers—little-known, little-regulated, and smack at the hub of an unfolding state investigation into Manhattan’s ever-ballooning home prices.

Since mid-May, State Attorney General Andrew Cuomo has issued subpoenas to three companies. “You’re going into a hornets’ nest,” Melissa Cohn, the owner and chief executive of the subpoenaed Manhattan Mortgage, told The Observer.

Here’s what stings: Say you want to refinance a mortgage, and your mortgage broker orders an appraisal to pin down your apartment’s market value. If the appraiser says your apartment is worth less than you thought, you won’t get the mortgage you wanted—because banks will only lend a certain fraction of the appraised value.

And when the deal falls through, your commission-based mortgage broker doesn’t get paid.

“That’s when people make the mistake of saying: ‘If you don’t make this deal happen, you’re not getting my business anymore,’” said Steven Maxwell Knobel, a co-founding partner of the New York appraisal giant Mitchell, Maxwell & Jackson, which Mr. Cuomo also subpoenaed.

“I get it from major banks, I get it from mortgage brokers,” he said about that pressure.

His firm did 20,000 appraisals last year, so they got “hundreds” of those browbeating phone calls. “Thankfully, since I’ve gotten big, I’ve had the opportunity to tell the bad people to go away.”

But even without the bad people’s direct threats, appraisers are more gently and more commonly pressured by the custom of mortgage brokers telling them beforehand what number the client is expecting from the appraisal. That’s the value, of course, your mortgage broker wants met.

“You’d think that in order to get a truly 100 percent objective appraisal, you wouldn’t give them a number,” said Ms. Cohn. “But we do, because that’s what we’ve been asked to do.”

(Nevertheless, she and Mr. Knobel both maintained that appraisers don’t necessarily feel forced to hit that client-made value.)

Jonathan Miller, president of the Miller Samuel appraisal firm and an oft-quoted real-estate blogger, disagrees. He estimated that only one in four or five American real-estate appraisers does his or her job independently. “The rest of them are order-takers; they’re making the number, and it all works out.

“It’s a joke—the system is a joke,” Mr. Miller said. “There is very little independent analysis of what collateral is really worth.”

New York’s Longest-Running Real-Estate ‘Joke’