Why appraisals are an issue right now

THE HOME VALUATION CODE OF CONDUCT…. APPRAISAL HORROR STORIES?…

The Home Valuation Code of Conduct, or HVCC, is the newest tool in the shed to fight fraud in the mortgage industry.  As a result of an investigation by New York attorney general Andrew Cuomo into practices by Fannie and Freddie this code of conduct was adapted nationally on May 1,  The problem with this new tool is that it was never sharpened before being put into use.

Briefly, the HVCC prohibits a loan officer from ordering the appraisal directly from the appraiser.  A mortgage bank can order the appraisal on behalf of the loan officer but the mortgage bank must either use an appraisal management company (AMC) or use a randomly selected system that rotates the orders to appraisers as they arise.  Who cares?

Well, you might if you have an appraisal problem and you can’t talk to the appraiser about it.  See, loan officers aren’t even supposed to talk to appraisers, either.

AMCs sign up appraisers from all over the country to be a part of their service.  When an appraisal order comes in. whomever is next in line for an appraisal gets the order.  AMCs also require the appraisers to take a reduced fee for their appraisals if they want to be on “the list.”

A relationship between a loan officer and an appraiser is a crucial one.  Personally, I want only the best for my clients and that’s why I’ve pretty much used the same appraiser for my Austin deals over the past several years.  I’ll go ahead and give him a plug, his name is Brett Framel of Framel Valuation Services.  (I wonder if I just broke some kind of HVCC law just then?)

If there were every any appraisal issues I would simply review them with Brett and we’ve move on.  But just in the past week I’ve experienced these two issues with appraisals ordered and received from an AMC.

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1:  Story number one.  Home sale here in Austin area.  This guy has at least three legs on it.  If the first sale doesn’t go through, it kills two more deals down the road.  Enough said.

Appraisal ordered and contract sent to AMC.  Appraisal was an “Exterior Only” or a “drive-by.”  Sales price $225,000….appraised value?  Try $221,000.  Honestly, why even bother?  But the kicker is the comment the appraiser made in the adjustment section that stated “Interior Below Average” when compared to comps so he adjusted the the value by $4,000. 

Did you catch that?  An “exterior only” appraisal means you don’t go in the house.  So how could the appraiser determine that the interior was below average?  The fact is that he couldn’t have.

By the way, he also said there was no fence or sprinkler system which there indeed were and failed to mention that the house backed up to a greenbelt.  Just that alone would be enough to make up for the $4,000.

The loan officer couldn’t call the appraiser and point out these errors so he could only call the AMC and complain.  Nothing happened for a couple of days so the Realtor called him but the appraiser never called him back, either.

The loan officer then ordered a full appraisal from the same AMC, the AMC ordered the appraisal and of course, the value came in at $225,000.  This lost valuable time and very nearly either killed three deals.

2:  Number two:  Sales price $595,000 in Westlake.  Appraisal ordered by AMC and came back labeled “Declining Market.”

The value came in at $595,000 allright but when the appraiser checked off “Declining Market” box new lending rules mean the loan-to-value is reduced by 5 percent.  That meant the buyer had to come in with another $30,000 to close the deal.  He fortunately had the money and decided to put another 5 percent down but what if he didn’t or couldn’t?

My take on this is, where in Westlake is there a Declining Market?  Sales may have slowed but median prices have remained relatively solid and certainly nothing to warrant labeling 8W as “declining.”

Goodness gracious.