For professionals in the housing industry (mortgage, appraisal, & real estate) the new appraisal rules known as the Home Valuation Code of Conduct (HVCC) is a hot topic these days. These rules which became effective May 1st were designed to improve the accuracy and integrity of appraisals. However, as many professionals is the housing industry will testify there are many problems with the execution of these rules. Syndicated columnist Jack Guttentag wrote a good summary of these problems which was featured in the Sunday Oregonian.
Here are some talking points from the article:
*Jack’s definition of an appraisal: “Appraisals are informed judgments regarding the value of specific properties.” – I like this definition because it is a reminder that appraisals ARE subjective.
*Objective of HVCC: “The objective of the code was to insulate the appraisal process from influence by any of the parties with an interest in the outcome.”
*Problems with the rule: “The problem with this well-intentioned rule is that it was issued….squarely in the middle of the worst housing market since the 1930s….Many deals are not getting done because appraisals are coming in too low, and HVCC is seriously aggravating the problem.”
*Why the bad appraisals?: “…more appraisals are being done by appraisers who are not familiar with the local market.”
*Many appraisers under HVCC “are also paid less per appraisal than (before), which may induce them to invest less time.”
*The article goes onto explain that under HVCC the turn around time on appraisals has increased by approximately one week which has put closing dates and buyer’s interest rate locks in jeopardy.
*HVCC prevents loan officers from keeping “clients informed about the status of an appraisal.”
*HVCC also limits “access to to informal value opinions from the appraisers…Such opinions allowed them to abort house purchases and refinances that clearly would not fly because of inadequate property value.”
*”HVCC has also pretty much eliminated the ability of a borrower to use the same appraisal with multiple loan providers.” If a deal falls through with one lender “borrowers often have to pay for more than one appraisal.“