By Carol McCarthy, Realtor, ABR, Exit 1st Choice Realty of Woodbridge, Virginia
A few months ago, HVCC (Home Valuation Code of Conduct) was implemented for Conventional loans which wreaked havoc on many pending transactions. What is the HVCC, you may ask? It is a rule that Congress imposed on the Real Estate and Mortgage industry thinking that they were fixing a problem without consulting those with boots on the ground. Essentially, the point was to prevent any direct communication between an appraiser and Mortgage Lenders or Real Estate agents while appraising a property under contract. However, in addition to this, the appraisers now couldn’t be hired directly by the lender and, instead could only be hired by an Appraisal Management Company, who often were hiring less experienced appraisers not familiar with the subject area.
I had such an experience while representing sellers of a beautiful, well maintained, 5 year old custom built house. The appraisal came in $30,000 too low. It was a serious blow to everyone, especially the sellers who were already bringing money to the table. It was also a problem for the purchasers who had locked in a loan at a very low interest rate. It would be a big financial hit for them to start house hunting all over again when interest rates had risen.
The appraiser was hired by an Appraisal Management Company for $250. The usual pre-HVCC fee for an appraiser had been around $400-that would be paid directly to the appraiser. However, under the new HVCC arrangement, in addition to a much lower fee for the appraiser, a portion of that $250 had to be shared with the Appraisal Management Company. It’s obvious that the experienced appraisers are not going to work for perhaps $175 instead of $400. This, inadvertently, drives the more capable, experienced appraisers out and nobody wins when that happens.
Case in point, in the circumstance that I experienced, the appraiser was comparing my seller’s property to three other distressed properties nearby, which of course, was a seriously flawed comparison. Fortunately, I had been inside two of those properties while showing houses to other clients. As a result, I was well aware of their condition; missing appliances, flooring, holes in the wall etc.
Faced with this flawed appraisal, and desperate for a recourse, I discovered that there is a method in place to dispute such appraisals. In order to bring things to an equitable close, however, it is of vital importance that you have all your facts together and on paper. Oh, and make sure you check your emotions at the door. . .in other words, “the appraiser is an idiot” is not one of the facts you need to bring forth.
Once you have your t’s crossed and i’s dotted, everything is then presented to the lender who will then submit it to the Appraisal Management Company. In my case, to garner a few more brownie points, I prepared a spread sheet with comments clearly describing the condition of the distressed properties. I did this, also, because I was sure the appraiser hadn’t taken the time to assess those properties from the inside. I asserted that if those distressed properties were to be used as comparables, then there had to be compensation for their distressed condition. In lieu of that, I offered a more expedient and reasonable course. I simply proposed that we substitute the distressed properties with other properties more comparable, outside and inside, to my client’s property.
It worked! The new appraisal came in $2,000 over sales price! The settlement was delayed a week, but it went through, albeit with 2 agents having gained a few more gray hairs!
The positive part of this scenario, was that, except for the appraiser, all parties were extremely cooperative. The buyers and sellers were very empathetic with one another, as well as the agents and the lender.
So, after this long story, we’ve recently learned that FHA loans won’t be bound by the rules of the HVCC! . . .and thus, we breathe our sigh of relief!
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