Lately, have you heard people tell you their appraisal horror story? 3 days before closing they found out that the appraisal was $100,000 below contract price! The appraisal process has become a big component of making a deal happen. That’s because of the HVCC agreement (No- not Heating and Air Conditioning silly!)
The Home Valuation Code of Conduct (HVCC) is the result of New York State Attorney General Andrew Cuomo’s 2007 lawsuit against Washington Mutual’s preferred AMC (Appraisal Management Company) eAppraiseIt LLC. The lawsuit was brought after eAppraise. It was supposedly forced into providing WaMu with inflated values for properties WaMu was making loans on— eAppraiseIt also allegedly benefited from the extra business WaMu provided because of their alleged willingness to be coerced into providing inflated property values.
The Home Valuation Code of Conduct (HVCC) sets standards for solicitation, selection, compensation, conflicts of interest and appraiser independence. According to the agreement mortgage brokers and real estate agents are prohibited from selecting appraisers. However, realtors and lenders can talk to appraisers including requests to consider additional data or to correct errors. Important information that may effect value that an out of area appraiser might miss are: located on busy street, was tenant occupied before sale and needed repairing, Investor purchase, home being used as a comparable had a bad floor plan etc.
Attention Buyers; Make sure your lender gets your real estate agent the appraiser’s information and the date of the appraisal, so that your real estate agent can talk with the appraiser about the market and provide comps during the appraisal.
HVCC took effect May 1, 2009, and applies to conforming loans, of 1-4 unit single-family, up to the conforming loan limit amount of $729,750, that will be sold to Fannie Mae or Freddie Mac. Conforming loans make up, according to the NAR, over 71% of the total loans originated in the United States. Note FHA loans do not apply under the HVCC rules. R
Read more on HVCC here: www.realtor.org/hvcc
The National Association of Realtors (NAR) recently put out a survey to members asking what impact, if any, the new Home Valuation Code of Conduct (HVCC) has had. Here are the results:
• 75% of Realtors representing buyers or sellers said that the time to obtain a completed appraisal increased after May 1st (when HVCC took effect). 69% reported an increase of over 8 days.
• Lost sales were reported by 37% of Realtors trying to get a sale to closing with 20% reporting more than 1 lost sale.
• Reports of lost sales will impact the fallout rate in pending home sales although some of these sales may be completed after a delay of who knows how long.
• Increased use of out of area appraisers was reported by 70% of Realtors trying to complete a sale.
• NAR appraiser members say they now obtain over 50% of their appraisal management companies (AMC).
• Around half of NAR appraiser members say their fees have been reduced by AMCs. 70% says consumers are now paying higher fees. Of course the AMCs are getting the difference.
• 85% of NAR appraiser members reported a perceived reduction in appraisal quality!
• NAR appraiser members reported that a ‘significant’ number of their assignments were in unfamiliar areas. 16% said that 11% of their assignments were in unfamiliar areas.
Why is the quality of Appraisals going down under the HVCC?
Appraisers that work with AMCs loose 40-60% of their income in fees splits with AMCs. Also, there is twice as much paperwork for appraisers to fill out to complete an appraisal according to HVCC rules. That means, appraisers are working twice as hard for half as much money, stated another way, appraisers are making about a fourth of what they were making 1 year earlier. It is a very tough time to be an appraiser!
AMCs assign appraisals on a first come, first served, rotation basis without regard to an appraiser’s experience. You may get assigned an appraiser who is from out of area and has no experience working in your local marketplace. This means, it takes longer to close escrow- I am recommending to all my clients 45 day escrows, and that you have to micro manage the appraisal process so that you can give yourself the absolute best chance to have your appraisal come in at contract sales price. Call me for a referall to my appraiser- he is a true professional 310-388-7332 or email James at firstname.lastname@example.org
Fannie Mae FAQ:
Freddie Mac HVCC FAQ