Okay, first, I have a confession to make. The bank that I work for chose to be proactive and we began implementing the Home Valuation Code of Conduct on mortgage applications taken on or after January 12. Why did we do it so early? I’m not going to attempt to read the minds of the corporate people on that one.
I am going to share what I’ve learned about the Home Valuation Code of Conduct and what it means for lenders, Realtors and consumers. Please remember this is not a formal analysis of the rules of the HVCC, this is strictly my personal experience of what it means:
The Five Most Important Things About the Home Valuation Code of Conduct:
1. For consumers – it means that the cost of an appraisal has gone up. 6 months ago, a standard appraisal in my area would cost between $275 and $300. Now, that same appraisal is going to run $375. What does the consumer get for his additional $75? Basically, he gets one thing. He gets a bit more comfort that the appraiser isn’t necessarily a friend of the Realtor or the lender and he doesn’t need to be as concerned that the appraiser is being pressured by someone to “meet a number” so the deal gets done.
2. For Realtors – it means that they can’t rely on “a friend” to get the deal done. The days of working with the local appraiser who knows pretty much the entire market are over. Now they have no impact on who does the appraisal. So what does that mean? It means that they are probably going to be getting some appraisers who don’t know the market as well. What does that mean? It means the Realtor has to not only know the market, they have to have the data available and be able to pass that information quickly and easily to the appraiser. I don’t believe that it would violate any rules if the Realtor were to look up what they feel are the 6 best comparables, print the information and have it waiting at the house when the appraiser went through.
3. For Lenders – the days of calling up an appraiser to “see what they think” about the value of a house are gone. I was talking to a prospective refinance client the other day and he didn’t qualify for the “Obama” loans because he was pulling cash out to pay off a rental property. Whether the deal would do what he wants would depend on the appraisal. I used to be able to call an appraiser and discuss the deal with him and give the client a “good feeling” about whether it would work or not. Not any more. Now I had to tell the customer to check www.zillow.com or talk to a local Realtor and do their own research to determine whether it was possible to get that value and whether it’s worth spending $375 to “try it.” The opportunity to help with advice and counsel in that way is now gone. On the flip side, consumers don’t need to worry about an unscrupulous lender pressuring the appraiser to get a “higher” than true value so the deal would close.
4. For Everyone – time. This is probably the biggest difference with the HVCC. I remember a transaction where we got the appraisal done in 24 hours so that the buyers could take possession of the house when they got back from their honeymoon. That wouldn’t happen any more. Plain and simple, the layers of management, administration and quality control that have been put between the front line lender and the appraiser are making anything less than a 2 week turn around time somewhat miraculous. Oh, and it makes it very important to make sure when you are writing a purchase agreement and/or locking in an interest rate that you give it enough time for today’s realities.
5. For Everyone – coordination. Nope, I’m not talking about the ability to dance or ride a bike or anything like that. I’m talking about coordinating the details on a file. The client, the Realtor and the lender need to be in constant contact between when the purchase agreement gets signed, inspections done and the appraisal ordered to make sure that not a day gets missed. I had a file earlier this year where I talked to the Realtor in the transaction two days before inspections were to be done. I said, “Let me know when inspections are done so we can order the appraisal.” He neglected to let me know and I didn’t follow up with him for a number of days. Long story short, it was a bank owned property, the delay due to the appraisal cost the buyer $100 per day and I made $300 less on the deal because I felt at least partially responsible for the delay. Those type of delays are not tolerable in today’s market and you need to work with people who are organized enough to avoid them.
Is the HVCC a good thing? I’m not so sure that it is. But, is the HVCC the end of the world? Nope, it’s not that either. It does prevent the unscrupulous lenders and Realtors from blackmailing appraisers, but it also adds a layer of bureacracy and red tape that is hard to work through.
So, let’s all take a deep breath, work with the system and make the necessary adjustments.
We’ll be fine.
Tom Vanderwell
If you are organized, patient and plan ahead, the HVCC is an obstacle that can be overcome.
Eileen Pettengill says:
Already experienced this change first-hand. The appraiser knew nothing about the neighborhood.The home was correctly priced. I had current, relevant comps. I had a list of the upgrades and their value. I had facts about the gated community. I had a signed agreement from the buyer to purchase the home at a particular price. I had no recourse when the appraisal came in much lower. And I had one pissed seller!
May 18, 2009 — 6:39 pm
Don Reedy says:
Tom,
Just tell me this. Under what circumstances would it ever be prudent (to maintain arms length dealings among all the parties to the real estate transaction) to hire an appraiser who didn’t know the area. Isn’t that de facto malfeasance, or at least a lack of the fiduciary duty a lender should owe the parties? Once you start with (potentially as Eileen notes above) a non qualified appraiser, I believe all other ancillary bets are off the table.
May 18, 2009 — 7:58 pm
Steve Trang says:
We’ve already gone through this as well. Lenders are frightened to death to speak with the appraisal. I suspect this will be another case where well-intentioned ideas and actual results are two very different things. I hope I’m wrong!
May 18, 2009 — 8:11 pm
Brian Brady says:
“It does prevent the unscrupulous lenders and Realtors from blackmailing appraisers, but it also adds a layer of bureacracy and red tape that is hard to work through.”
I’m sorry, Tom but I can’t accept this statement. If some appraisers allowed themselves to be “blackmailed” then they need to go as well. There are a lot of outstanding appraisers who understood that we (originators and agents) could “argue the case” without exerting influence. They were SO good that they taught me how to read appraisals and how they value property.
If some appraisers were pliable, then they are as “unscrupulous’ as the very forces who “bent” them. If they continued to accept engagements from crooked lenders, they caused the problem.
PS: In my last post, you heard from many appraisers who dislike HVCC. I know none of them but I suspect that they are the professionals who know how to say, “I missed that comp, Brian” or “Brady, you’re pushing it”
May 18, 2009 — 9:16 pm
Steve Trang says:
This layer of bureaucracy also feels like we’re dealing with unions. Forget relationships altogether; my problem is that the lender can’t pick the appraiser that can turn an appraisal around quickly or make sure that if they have an iffy borrower, use an appraiser that is diligent enough to take good notes in case the loan goes from conventional to FHA.
May 18, 2009 — 11:35 pm
Mark Madsen says:
The good news is that I won’t have to worry about my agents getting mad at me when my appraiser can’t bring in their value.
May 19, 2009 — 1:18 am
Gail Tassey says:
I do not believe morality and ethics can be regulated, those unscrupulous individuals in any industry will just figure out another way to be unscrupulous. Regulations and more red tape that cost consumers more in time and real dollars do not benefit the consumer.
May 19, 2009 — 4:13 am
Rhonda Porter says:
Tom, your post doesn’t address how this impacts appraisers who now will be doing the same job for about 40-60% of the revenue.
By the way, I’ve never blackmailed or even leaned on an appraiser to receive a certain value. I have asked them to provide the appraisal by a certain time due to….I can’t do that anymore. I’m sure there are unethical LO’s and RE Agents…AND appraisers.
A year or two ago, I did have an appraiaser who used his second hat as a RE Agent to obtain a meeting with me (I didn’t know he was an appraiser too). He started to inquire how long my appraisal were taking–10 biz days unless I ask for a rush. He quickly showed his cards and offered to do my appraisals in 47 hours further revealing that he worked for WaMU’s AMC and always cranked them out that quick. He had to. He was living out of his car w/his girlfriend to accomplish this. He was a physical mess. On his way out the door, when I thanked him for his offer and let him know that I was really happy with the appraiser I’ve been working with for almost 10 years, he leaned over and whispered to me “well if you ever need an appraisal to come in a value he won’t do, call me. Some things are better off not emailed”.
Furthermore, it’s disgusting to me that originally the code had guidelines against banks having ownership interest in the AMCs–this has been modified. Banks do have interest in AMCs…the foxes are running the chicken coops.
May 19, 2009 — 7:16 am
Michelle DeRepentigny says:
I agree with Gail above regarding regulating morality and ethics. Several large AMCs are already bending the rules and looking for loopholes. I have always had good relationships with the few mortgage brokers that our appraisal shop does business with, and I did not hit numbers.
Last week I chose not to accept an invitation from an AMC to join their appraiser list. My local broker who used the lender that has choosen to utilize their services is upset with me but, I did not want my reputation linked in any way with theirs.
Additionally the HVCC only allows me to be paid directly by the lender or AMC they authorize as their agent, under no circumstances am I willing to extend credit to most of these companies.
Number me one of those appraiser who is not fond of the HVCC.
May 19, 2009 — 7:27 am
Thomas Johnson says:
HVCC guarantees incompetent corrupt appraisers stay in the business protected by the “third party” AMC owned by the lenders. Already dealt with this. Had an appraisal done by an AMC “appraiser”. The guy who measured the house must be a cross dresser, because the appraiser was signed by a female who never set foot in my listing. How does this increase the “integrity” of the appraisal process? Seems to me that the good appraisers will avoid the haircut and stick with divorces and estates.
May 19, 2009 — 8:16 am
Thomas Johnson says:
HVCC guarantees incompetent corrupt appraisers stay in the business protected by the “third party” AMC owned by the lenders. Already dealt with this. Had an appraisal done by an AMC “appraiser”. The guy who measured the house must be a cross dresser, because the appraisal was signed by a female who never set foot in my listing. How does this increase the “integrity” of the appraisal process? Seems to me that the good appraisers will avoid the haircut and stick with divorces and estates.
May 19, 2009 — 8:17 am
Tom Vanderwell says:
Hey all, Thanks for the great discussion. I’ve been off chasing a little white ball over some of the most beautiful real estate in Michigan so I’m a little late to the discussion. Let me throw a few thoughts into the mix.
First I want to start with something that I’d like to make perfectly clear. I am not a fan of the HVCC. I think it causes more problems than it solves. But I also don’t think its going to be as much of a problem for those who are thorough, competent and plan ahead as many think it will be.
Ellen – you said:
“I had no recourse when the appraisal came in much lower. And I had one pissed seller!”
I agree on having the pissed seller part, I’ve dealt with them too. What my personal experience has shown is that if the Realtor has documentation that shows the appraisal is inaccurate, they can get it to the lender who will then route it through the appraisal management company to the appraiser for consideration. Does that slow things down? Absolutely it does. Is there any real benefit to the steps that have to be gone through? None that I can see, but if enough time is allowed, it’s possible for appraisers to be asked to reconsider the data.
Don – you said:
“Under what circumstances would it ever be prudent (to maintain arms length dealings among all the parties to the real estate transaction) to hire an appraiser who didn’t know the area?”
None what so ever.
My experience has been that the appraisal management companies require that appraisers sign up that they are willing to do appraisals by county. So in my market, let’s say you sign up for Allegan county. That means you are certifying you can do appraisals from Holland to South Haven to Otsego/Plainwell to Hopkins to Dorr. That is a very large area and encompasses part of several “markets.” How can someone know all of those markets and know them well? They can’t.
From what I’ve had appraisers tell me, when they get an appraisal order, if it’s “outside” of their market area, they are supposed to “refuse” the order. That would require a level of integrity and professionalism which, based on anecdotal evidence, isn’t currently there. I’d love to hear from any appraisers who are experiencing otherwise, but from what I’ve been told, refusing an appraisal that’s outside of their market isn’t supposed to impact their standing with the AMC.
Steve. You said:
“Lenders are frightened to death to speak with the appraisal. I suspect this will be another case where well-intentioned ideas and actual results are two very different things.”
I agree with you on both points. I work for one of the “19” biggest banks in the country. We as employees have been flat out told that if we attempt to communicate with appraisers about particular transactions, it is “grounds for termination.” That’s pretty bold.
I also agree with you that the end results will probably not be what was intended. Ask yourself, how many government financial regulations have done what they were intended to do?
Brian – you and I are actually in more agreement on that part of it than what you think. There are a lot of top class appraisers out there and there are a lot of top notch Realtors and lenders who could all sit down and have an open and honest discussion about a property and the value of that property. Unfortunately, there are some bad apples who have done things that we’re all paying for.
My reason for writing this post about the HVCC is not to place blame or get into a discussion about good appraisers/bad appraisers, good lenders/bad lenders, etc. At this point, HVCC is the rules and I’m trying to share my 4 months experiences in living with this to help others live with it.
Steve, you said:
“Forget relationships altogether; my problem is that the lender can’t pick the appraiser that can turn an appraisal around quickly or make sure that if they have an iffy borrower, use an appraiser that is diligent enough to take good notes in case the loan goes from conventional to FHA.”
No arguments there. That’s a good point and a big problem with the new way that it works. For honest and reputable lenders and Realtors, it’s harder to make things work.
Mark, you said:
“The good news is that I won’t have to worry about my agents getting mad at me when my appraiser can’t bring in their value.”
Two thoughts: 1) They’ll still get mad at you. 2) You’ll be a little “insulated” from being the source of the anger because they’ll know about the HVCC and the issues it causes.
Gail, you said:
“Regulations and more red tape that cost consumers more in time and real dollars do not benefit the consumer.”
For the majority of consumers, you’re absolutely correct. There is a small portion of the people who worked with the “bad apples” who are benefitting, but most won’t.
Rhonda, you said:
“your post doesn’t address how this impacts appraisers who now will be doing the same job for about 40-60% of the revenue.”
You’re right – that wasn’t the point of my post. Talking to one of my local appraisers, here’s how he looked at it: “I’m getting less money per appraisal, but I’m getting business from a broader spectrum of lenders than I did (rather than doing business with 1 lender at my bank, he has a chance at being the “chosen” appraiser for deals from 30 loan officers at my bank.) So, I’m at least staying afloat and paying my bills.
Rhonda – never in a million years would I ever have thought that you were one of the bad apples that created this mess. If you thought I was implying that, I apologize.
I’m absolutely in agreement with you about the AMC/Bank ownership fox running the hen house analogy. Unless we can break out of the patterns of blatant manipulation and conflict of interest, we’re going to repeat the same issues that caused the problems.
Michelle, you said:
“Several large AMCs are already bending the rules and looking for loopholes.” and that you aren’t fond of the HVCC.
I find it very disturbing that the AMCs are attempting to game the system. You’d think we’d have learned, but not yet.
A question – I agree that it’s difficult if not impossible to regulate morals and ethics, but is it possible to legislate/regulate professionalism?
Thomas – you said,
“Seems to me that the good appraisers will avoid the haircut and stick with divorces and estates.”
It’s all about the size of the pie. If the pie that consists of divorces and estates, that would, in many ways, probably be a better pie to work from. However, if that pie is so small that it doesn’t generate enough income, then an appraiser is going to have no choice but to roll with the punches and work with the HVCC challenges.
Thanks for the great discussions. I will be the first to admit that I don’t like the HVCC and that for most people and most lenders, appraisers and Realtors, it’s going to make the job of getting real estate transactions closed in a timely manner harder and more expensive than ever.
One of the main reasons that I write on Bloodhound and also on StraightTalkAboutMortgages.com is because there are a lot of new, unusual and stressful things going on in the market right now. If I’m not doing what I can to help others understand and navigate these turbulent times, then I’m not doing what I’m supposed to.
A lot of what I write about are things I don’t like, but they are important and necessary things to know and discuss, at least in my opinion.
The Home Valuation Code of Conduct is currently the law of the land when it comes to appraisals. We have a choice, we can work with and understand it so we can get deals done, or we can go home. I prefer to work with it, even if I don’t like it, which I don’t.
Tom
May 19, 2009 — 7:33 pm
Chris Brown, CMPS says:
I had my first few go through HVCC and i have seen a 30% increase in costs to the consumers and the quality is quite lacking. More ‘symbolism over substance’ I am afraid.
The reality is that it is here and we have to deal with it – I have no doubt that the ingenuity of the American mind can discover a way for us to still deliver world-class service, however!
May 20, 2009 — 5:35 am
Kevin Sandridge says:
The HVCC is here, and – as Chris Brown said above, we’re going to have to make the best of it. I’ve had several conversations with Appraisers who have pretty much been following the requirements of the 1004 MC Market Addendum for years. They’ve established or have purchased systems that will help keep their appraisals running along accurate and relatively fast speed. So, they’re not seeing a ton of need for fee increases. However, for those just getting into the business or have any learning curve to overcome whatsoever – I do see some major lag time.
The main issue I see here – and the one that indeed smacks of the Foxes running the Hen House – is that which deals with Appraisal Management Companies (AMCs) being formed and run by folks who have no business being in “our business.” Seriously, in some cases – these folks are former lenders who have been barred legally from doing business as such! What a mess.
May 20, 2009 — 6:15 pm
AJ The Appraiser says:
While the HVCC may be an inconvenience to many industry professionals, it is a major destructive force crushing the professionals remaining in the appraisal industry. The lowest bidding appraisers in the Country are receiving the vast majority of orders while the professionals that refuse to rush out reports are losing business left and right.
“I’m getting less money per appraisal, but I’m getting business from a broader spectrum of lenders… he has a chance at being the “chosen” appraiser for deals from 30 loan officers at my bank.) So, I’m at least staying afloat and paying my bills.”
Super! – So he is making 1/2 his fee, but the good news is that he has more business? You have to be kidding me. Do you think there is any chance that the quality of his reports has not suffered due to the fact that he has to perform almost twice as many appraisals in the same amount of time?
As a quality appraiser firm, our company refuses lowest bidder work. While we have “a chance” to be chosen, we are not chosen for 90+% of AMC work because the overwhelming majority of these companies are bank owned profit centers using the lowest bidding appraisers available. Even AMC staff will admit that AMCs base their selection on the lowest bidder 90% of the time.
The quality of appraisals is going down, and you are all going to pay the price along with your clients, the industry, the market, and (thanks to government backed bail outs) let’s throw in the tax payer. Without corporate independence the HVCC will continue to consolidate power and money in the hands of these ever so trustworthy lenders.
Thanks for trying to get the theft of our wages addressed Rhonda, it is nice to know some of you get it!
How could we expect any less from Cuomo when his own AMC went under stiffing appraisers all the way down? What justice can appraisers expect when the bank lobby was able to get corporate independence stripped from the code? How blind do you have to be to not recognize the fleecing of your clients and the removal of independence in the process? The watch dogs are gone, and we now have bank influenced yes men working in their place.
May 31, 2009 — 2:25 pm
Tom Vanderwell says:
AJ,
Thanks for sharing your perspective.
A couple of thoughts:
1. If the choice is working twice as hard to maintain his standard of living or filing bankruptcy and losing his house in foreclosure, yeah, the appraiser I talked to will take working twice as hard for the money. I know of very few people who won’t.
2. If the appraisals are going to the “lowest bidder” then tell me a couple of things: Why has the cost of appraisals gone up in my area from an average of $300 to an average of $375? Curious to know……
3. No arguments from me on the quality of appraisal issue. With the exception of the few instances where there was blatant manipulation by one of the parties involved, the quality isn’t what it was…….
4. I’ll say it again, I’m not in favor of the HVCC, I’m not liking the way that it makes it difficult to take care of customers and if there was a way to “weed out” those who would attempt to manipulate appraisers, we’d be better off without it. But it’s the way the game is played now and I want to continue playing the game, so I figure I better learn to work within that system. At the same time, I’m going to keep talking about it so that people realize what isn’t working.
As to the banks owning AMC, I think that’s wrong, hypocritical and just downright worrisome……
Tom
May 31, 2009 — 6:34 pm