Living In Pike.com

As of May 1st, 2009 the Home Valuation Code of Conduct (HVCC) went into effect.

The New York State Attorney General Andrew Cuomo in 2007 filed a lawsuit against eAppraisalIT and its parent, First American, for caving in to Washington Mutual, which allegedly pressured appraisers to submit so-called inflated appraisals. As a result of the lawsuit, Fannie Mae and Freddie Mac, the largest purchasers of home mortgage loans in th United States elected to adopt the Home Valuation Code of Conduct. It does not affect FHA loans.

The rules of the HVCC say that individual banks and mortgage brokers who sell conventional loans in the secondary market to Fannie Mae and Freddie Mac cannot hand-select their own appraisers anymore. They must let an appraisal management company pluck an appraiser from its pool of appraisers to do an appraisal.

The HVCC rules are meant to stop collusion between lending institutions and appraisers. However well meaning, the Home Valuation Code of Conduct, according to me and many other professionals in the real estate business, has backfired. In an attempt to thwart inflated home values, which constituted a small portion of the appraisal market, the HVCC has instead caused chaos and messed up the entire appraisal process for many conventional borrowers.

How will this affect Pike home buyers and sellers?

Out-of-Area Appraisers Are Performing Appraisals – Do you think a Bloomington IN appraiser would do as good as a job as a north side Indianapolis appraiser could do? Do you think they will know the area?

Appraisers With Less Experience Are Performing Appraisals – The experienced and mature appraisers are quitting the business or retiring early. Because they have to give up 40 to 60 percent of their fees to the agency they work for, they would have to do double the work just to be where they are today. Hence the new appraisers are getting the work.

Experienced Appraisers Are Going Out of Business – The thing about experienced appraisers is they have most likely been inside the homes in the neighborhoods where they are asked to appraise. They know why a home on one side of a physical boundary may have a higher market value than a home on the other side. They count on repeat business. When that source of business dries up, they have no job and their expertise is worthless.

Transactions are Falling Apart Because Appraisals Are Too Low – Appraisers who don’t know the neighborhood or have little experience are far more likely to produce an under-valued appraisal. When an appraisal comes in less than the sales price, many sellers refuse to negotiate and buyers don’t want to make up the difference. So the pending sale blows up. The seller loses the buyer and the buyer loses the home.

The Consumer Pays an Increased Cost for the Appraisal – There is no free lunch. Because the appraisal management company that selects the appraisers must be paid, consumers bear the cost. Part of the appraisal fee goes to the appraisal management company with the balance to the appraiser. Somebody has to pay the fee to the appraisal management company which could be as high as 60 percent. I suspect appraiser fees which now are in the $300 to $400 range will soon go up.

PERSONALLY I have not been affected by the HVCC as of yet. I have heard stories within my company. In the past I have been called on by appraisers asking general questions. The HVCC now makes it questionable to talk to a Realtor involved in the transaction.