The Associated Press reports on incentives. "Buyers are demanding cash payments and other incentives that may be artificially propping up sales prices, suggesting the market downturn could be even more pronounced than has been reported."

"Gonzalo Sotelo, a licensed real estate agent in Salinas, Calif., said that three times in the past few months, buyers' agents approached him about securing cash back at closing without informing the lender. An agent from the nearby San Francisco Bay Area proposed having a home with a $539,000 asking price reappraised and sold at $600,000, with Sotelo's client paying back $60,000 in cash to the buyer."

"Sotelo said he turned down the deal and hasn't heard from the agent since. 'Because the market is changing right now, I think people are trying to be a little bit more creative,' Sotelo's boss, Jose Palma said. 'We tell our agents: 'There's a black area and a gray area.' I tell them to stay away from the gray area.'"

"Offers abound from sellers; giving cash back allows a seller to sweeten the offer without having to lower the actual stated value of the home. Economists say the practice could be inflating reported prices and distorting our view of a market already suffering from higher mortgage rates and a sense that the market is enduring a significant correction."

"Inflated prices potentially cause harm to banks, which could take a hit if the mortgage holder defaults and the home turns out to be worth less. It also could affect buyers of neighboring homes, who may be making decisions based on faulty data."

"When sellers use incentives to reduce the actual price without cutting the reported price, 'then the reported prices are an overstatement of the true net selling price,' said Lawrence White, at the Stern School of Business at New York University. 'So that very likely means that the real drop in home prices is greater than what the standard sources, like the National Association of Realtors, have been reporting.'"

"Noncash incentives also have an effect, but aren't reflected in the prices, or for that matter, the statistics. 'It's simply not reflecting the pace of change in them,' Mortgage Bankers Association Chief Economist Doug Duncan said."

"'If you look at the federal statistics on price, it's not adjusted for the quality change,' he said. 'So if you take the house and list it for $250,000 and you add a finished basement and granite countertops, is it still the same house? Not really.'"

"Citigroup economist Steven Wieting said, 'It's possible the price statistics are not reflecting the incentives.' Wieting wrote, 'In August, the median new home sales price fell 1.3 percent. Building 'incentives' are probably much larger.' D.R. Horton offered buyers $120,000 in savings last month at the Tuscan Estates in the Elk Grove area near Sacramento."

Inman News reports on appraisals. "They aren't about to replace experienced appraisers, but proponents of automated valuation models say they can give their human counterparts a run for their money as lenders look for numbers they can trust in a down market."

"'Not only are the properties tougher to appraise, but loan officers 'are trying to push you on value,' Dearborn, Mich-based appraiser Terry Hanning said. 'But that's true for every appraiser.'"

"If AVMs are vulnerable to faulty or old data, there are those who say human appraisers are too susceptible to influence by their clients, who may persuade them to value properties according to a predetermined loan size or sales price rather than market value."

"If AVMs are picking up converts, Mark A. Cannon, South Florida residential division director for Integra Realty Resources, is not one of them. Cannon said AVMs are easily thrown off by details or circumstances that human appraisers are trained to spot."

"'I specialize in litigation, high-end residential valuations and mortgage fraud,' Cannon said. 'When the market slows down, our firm gets very, very busy with pre-foreclosures and fraud, going after other appraisals.'"

"An AVM, you push a button and pull up all these sales,' he said. 'They all look like arms-length transactions. You come up with a price per square foot, multiply by square footage, and conclude. But what happens if you have an investor going in and purchasing condos in bulk? Lets say there is mortgage fraud and they are selling them to themselves, to family and friends at 25 to 30 percent over market. An AVM is not going to be able to tell you that.'"

"'The loan processor, the mortgage brokers, the loan originators are the ones who get paid the big bucks, because they are the ones charging all these major fees,' Cannon said. 'When the appraiser asks for his few hundred dollars, they say, 'I can get somebody to do it for less.' That's why these AVMs have come about.'"

"But Cannon said that lenders who skimped on appraisals during the boom years set themselves up for a fall. 'When things are good, nobody questions (the quality of appraisals),' he said. 'When people stop making the mortgage payments, and we have an increase in foreclosures, lenders are going to say what did we do? Why did we go to the AVMs? We should have been in control of this.'"