New Appraisal Rules: Coming to a Sale Near You

In the last several years, some significant changes in both the real estate and home loan sides of the housing industry have had an impact on real estate transactions. The issue I would like to bring to your attention today could go further and affect the way you do business.

The Home Valuation Code of Conduct (HVCC), which becomes effective May 1, 2009, governs the way in which appraisals must be ordered for all residential real estate transactions, where the loans are sold to Fannie Mae and Freddie Mac.

The purpose of this new regulation is to ensure that the value of the home - on which a mortgage is being issued - is arrived at both independently and objectively.

While loan originators have traditionally been able to order appraisals directly from local appraisers who they know to be familiar with the neighborhood or region, this legislation will prohibit this practice and will instead randomly assign an appraiser, who may or may not be someone in the immediate area. The new legislation also eliminates the loan originator's ability to discuss the property with the appraiser.

In order to comply with HVCC, some lenders and brokers are choosing to use the services of Appraisal Management Companies (AMCs), which will select from a list of licensed and approved appraisers to complete individual appraisals. Other lenders may choose to establish in-house appraisal ordering departments that will operate independently of those involved in the loan origination.

While, ultimately, the value of a property is the value of the property, an appraiser can only successfully determine what the value is by having the right information about the home and the local market.

Whether you are involved in a purchase – or assisting a past relationship with a refi – here are a few tips to help you prepare for an appointment with the appraiser. First, prepare a list of all properties that you deem to be comparable to the subject property. Additionally, be prepared with any notes or other information that you believe would be beneficial in arriving at an accurate value. Once you have them collected, offer them to the appraiser when you meet them at the inspection.

While you may already be providing this service on behalf of your clients, I thought it would be appropriate to stress how important this extra step becomes in light of HVCC. Also, realize that this regulation may prompt previous relationships to contact you for comps to help with a refi.

Below I have included links to some additional information about HVCC and various industry perspectives on this important subject:

Appraisal Scoop.com
Realtor.org
Freddie Mac HVCC FAQ
Fannie Mae HVCC FAQ

As more information becomes available about HVCC and its impact on our business, expect that I will keep you informed.