The New Home Appraisal Rules Have Adverse Effects on Both Buyers and Sellers
What does an investigation by the New York Attorney General have to do with my home appraisal in Atlanta? Well basically Andrew Cuomo was investigating the appraisal practices of the Government Sponsored Entities (GSEs), aka Fannie Mae and Freddie Mac. To get the Attorney General to stop the investigation, the Office of Federal Housing Oversight and Fannie Mae and Freddie Mac agreed to what is now called the Home Valuation Code of Conduct.
The HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.
Any person that is compensated on a commission basis when a loan is closed is strictly prohibited from communicating with or selecting an appraiser. All the business relationships that have been developed over the years based on professionalism, quality and timeliness are now meaningless. Instead, appraisers are chosen from a preapproved list or from an independent Appraisal Management Company.
Home buyers are adversely affected because of the increased cost of appraisals. Since appraisals are in the lender's name, if a home buyer changes lenders, a new appraisal must be requested. This increase in time and cost to the mortgage process may trap some home buyers with lenders who are not currently meeting their needs. In addition, buyers may have longer rate locks or need to extend existing rate locks.
Most sellers are not in a position to reduce the sales price of their home to accommodate a low ball appraisal, so the contract falls apart. Consequently, a seller's only option is to appeal the low appraisal. May's statistics for new and existing home sales were up, but still fell short of market expectations. The National Federation of Mortgage Professionals, The National Association of Realtors and The National Association of Home Builders are pointing to issues with the Home Valuation Code of Conduct for this shortfall.
Appraisers are now the only industry with restrictions prohibiting communication with their customers. Remember, appraisers may not communicate with agents, loan officers, mortgage brokers or real estate brokers because they are paid on commission. Just as real estate agents pay a portion of their commission to their brokers, appraisers are required to pay approximately 40% of their income to the Appraisal Management Company with whom they work. These restrictions on communication and compensation could drive many experience appraisers out of the market and a time when we can least afford it.
CNBC interviewed several agents across the country regarding the low ball appraisals. Agents and brokers believe that 1 in 4 transactions are being adversely affected by the Home Valuation Code of Conduct. Therefore, NAR (National Association of Realtors) has requested that HVCC rules be suspended for 18 months to cut down on these negative results
The truth is that appraisers are caught between lenders and regulators who want conservative appraisals and buyers, sellers and agents who just want to conduct business. Lenders and regulators want foreclosures and other distressed properties to be used in the appraisals. Buyers and sellers just want to buy their dream home or sell their existing home and move on. Prior to all this free money in the mortgage industry, a home was worth what someone was able and willing to pay for it. Oh, how I long for the good old days!
The HVCC is an effort to clean up the mortgage industry. Although there are many good initiatives in this new code, there are many unintended consequences adversely affecting home buyers, home sellers, mortgage brokers, agents and appraisers.
Any person that is compensated on a commission basis when a loan is closed is strictly prohibited from communicating with or selecting an appraiser. All the business relationships that have been developed over the years based on professionalism, quality and timeliness are now meaningless. Instead, appraisers are chosen from a preapproved list or from an independent Appraisal Management Company.
Home buyers are adversely affected because of the increased cost of appraisals. Since appraisals are in the lender's name, if a home buyer changes lenders, a new appraisal must be requested. This increase in time and cost to the mortgage process may trap some home buyers with lenders who are not currently meeting their needs. In addition, buyers may have longer rate locks or need to extend existing rate locks.
Most sellers are not in a position to reduce the sales price of their home to accommodate a low ball appraisal, so the contract falls apart. Consequently, a seller's only option is to appeal the low appraisal. May's statistics for new and existing home sales were up, but still fell short of market expectations. The National Federation of Mortgage Professionals, The National Association of Realtors and The National Association of Home Builders are pointing to issues with the Home Valuation Code of Conduct for this shortfall.
Appraisers are now the only industry with restrictions prohibiting communication with their customers. Remember, appraisers may not communicate with agents, loan officers, mortgage brokers or real estate brokers because they are paid on commission. Just as real estate agents pay a portion of their commission to their brokers, appraisers are required to pay approximately 40% of their income to the Appraisal Management Company with whom they work. These restrictions on communication and compensation could drive many experience appraisers out of the market and a time when we can least afford it.
CNBC interviewed several agents across the country regarding the low ball appraisals. Agents and brokers believe that 1 in 4 transactions are being adversely affected by the Home Valuation Code of Conduct. Therefore, NAR (National Association of Realtors) has requested that HVCC rules be suspended for 18 months to cut down on these negative results
The truth is that appraisers are caught between lenders and regulators who want conservative appraisals and buyers, sellers and agents who just want to conduct business. Lenders and regulators want foreclosures and other distressed properties to be used in the appraisals. Buyers and sellers just want to buy their dream home or sell their existing home and move on. Prior to all this free money in the mortgage industry, a home was worth what someone was able and willing to pay for it. Oh, how I long for the good old days!
About the Author:
Tracy Anderson is an Atlanta native and an experienced real estate professional. Its important to find an Atlanta real estate agent who knows and understands the many Atlanta neighborhoods, but it is even more important to find one who will strive to meet your needs and be an advocate for you. Visit her website and check out the homes for sale in Atlanta, get great tips, and let Tracy go to work for you!