This is a topic on everyone's mind who is involved in a real estate transaction. It effects buyers, sellers, lenders and real estate professionals. Hopefully this article will shed some light on the current trends in real estate appraisal.
By Marcie Geffner
Real estate appraisals aren’t new. Indeed, lenders have long required an appraiser’s opinion of a home’s value before they will approve a loan for a buyer to purchase that home. What is new, however, is that the rules that dictate how lenders order home appraisals have changed significantly this year.
The new rules, known as the Home Valuation Code of Conduct, or “HVCC,” became effective May 1, 2009, and apply to most, though not all, mortgages. The rules are in flux, and at press time, it appears HVCC will apply to most FHA loans, effective Jan. 1, 2010. At press time, HVCC did not apply to VA loans. The rules were intended to reduce appraisal fraud and help ensure that appraisers aren’t subjected to improper pressures to inflate the home’s value.
Accurate and credible appraisals are certainly a laudable goal, yet the new rules also have resulted in some unintended consequences.
Here’s what you need to know:
Slow and Low Appraisals
One such consequence has been that appraisals now may take up to a week longer to be ordered and completed. Consequently, if your home purchase contract includes an appraisal contingency, you may want to allow more time for the buyer to approve the appraisal and check off that contingency. Buyers should expect to pay as much as $100 more for an appraisal than may have been customary before the new rules became effective.
Another consequence has been that appraisers have become more conservative in their home valuations. In some cases, the appraiser may even believe the home is worth less than the agreed-upon sales price.
If that happens, you should understand that the appraised value of a property isn’t necessarily the same as the market value since the appraisal is done for the purposes of the buyer’s loan, not the home sale. You also should be aware that if the appraised value is lower than the sales price, the buyer may choose to exit the transaction through the appraisal contingency or the buyer and seller may want to renegotiate the sales price.
A so-called “low appraisal” technically can be appealed; however, such appeals rarely result in a higher valuation.
The rules that established HVCC required that an Independent Valuation Protection Institute be established to maintain the integrity of HVCC. Appraisers can contact the Independent Valuation Protection Institute if they feel pressured, threatened, or bribed into situations that compromise their independent valuation(s) and compliance with HVCC. Consumers also can contact this institute; however, at press time, this institution was not established and an interim process for handling complaints has not been established. (www.independentvaluation-protection-institute.org/).
Buyers and sellers are both well advised to discuss the implications of these new rules with their REALTOR ® .
Learn More
Home Valuation Code of Conduct: www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf
• Freddie Mac HVCC Fact Sheet: www.freddiemac.com/singlefamily/home_valuation.html
• Federal Housing Finance Agency HVCC Notice: www.fhfa.gov/webfiles/14611/ hvcc_NOTICE_7_22_09F.pdf
• NATIONAL ASSOCIATION OF REALTORS® HVCC Resources: www.realtor. org/government_affairs/gapublic/gses_hvcc_announced
• California Office of Real Estate Appraisers: www.orea.ca.gov/
Marcie Geffner is a freelance real estate writer.
Reprinted with permission from California Real
Estate magazine, copyright 2009 by the the
CALIFORNIA ASSOCIATION OF REALTORS®,
all rights reserved.