Practitioners Must Adjust To New Appraisal Rules
HOME LOANS, INDUSTRY NEWS, REAL ESTATE LEGISLATION, TIPS FOR BUYERS, TIPS FOR SELLERS
September 8th, 2009
Although not required by law, lenders hoping to sell mortgage loans to Fannie Mae or Freddie Mac must follow the recently implemented HVCC (Home Valuation Code of Conduct) rules. These rules are intended to “insulate the appraisal process from undue influences by placing tight controls and restrictions on the ordering of the appraiser, as well as guidelines for communicating with the appraiser during the process” according to a recent article in California Real Estate.
Impacts of these rules, which began May 1, include the following as reported by active Realtors:
- A significant increase in the cost of appraisals. The author refers to the cost increase as “inexplicable” but I’m guessing the extra cost, $100-$150, is going to the appraisal management company
- Values have differed significantly from “perceived” market values. In other words, appraisals are coming in above or below the price agreed upon by buyer and seller. I define fair market value as a knowledgeable buyer and seller agreeing on a specific price and terms at a certain point in time.
- An increase in factual errors in appraisal reports is alledged by those in the field
- Time delays in completion of appraisals from several days to several weeks
- Appraisers, which are assigned appraisal jobs through newly-formed appraisal management companies, sometimes are recruited from more than 40 miles away from the subject property.
Suggestions for lenders, buyers, sellers, and agents include the following:
- Allow more time in the purchase agreement for removing the appraisal contingency. Change the 17-day period that is standard to the appropriate time frame needed by the lender
- Ask the appraiser assigned to perform the appraisal a series of questions before an appointment is set to enter the property. How long have they appraised homes in this area, how many appraisals they do daily and what data sources they use? Don’t be afraid to send the appraiser down the road and ask for a new one if you’re uncomfortable with their answers.
- Assuming the appraiser has passed the test, supply the appraiser with comps understanding the appraiser may refuse, reject or ignore them. The rules do not prohibit such exchange of information as long as the appraiser independently verifies the accuracy of the information. One option suggested is to black out the sales price on the comps given to the appraiser so at least you have alerted the appraiser to potential comparable he or she may otherwise miss.
- Complain to Congress requesting the Independent Valuation Protection Institute (IVPI) as envisioned in the legislation be formed. This is the only way complaints about the code can be heard. The IVPI was suppose to have a hotline and e-mail address for reporting problems that have arisen because of the code.
California Realtors are encouraged to contact their state representative in support of H.R. 3044, a bill that would place an 18-month moratorium on the HVCC.
530-224-6767 or 530-941-7492
BRAD GARBUTT
REALTOR/BROKER ASSOCIATE
REAL ESTATE PROFESSIONALS GMAC
CORNER OF COURT AND PLACER IN REDDING
QUARTER CENTURY LOCAL REAL ESTATE EXPERIENCE
