Having Appraisal Issues? Here's why...

HVCC, a.k.a. Home Valuation Code of Conduct. This may be one of the most absurd, pieced together, least thought out rules to ever materialize in the mortgage/real estate business. The funny thing is...IT IS NOT EVEN A LAW!!!

HVCC was a settlement to a lawsuit filed by the Attorney General of New York, Andrew Coumo, against Fannie Mae and Freddie Mac. The idea behind HVCC was to help ensure appraiser independence and to protect the integrity of the appraisal valuation process. HVCC was a settlement. Instead of the NY Attorney General suing Fannie Mae, Freddie Mac, WaMu and First American’s e-Appraise-it appraisal management company, we ended up with HVCC. Sounds like a decent idea on the surface.

However...here is the issue. Appraisals used to cost about $380 for a standard lot/block appraisal. The cost has not changed. What has changed is the amount the appraiser actually receives out of that $380. Now, because of HVCC, all appraisals must be ordered through an appraisal management company, or AMC. The AMC contracts out the appraisal job to the lowest bidder and pockets the rest. Therefore you have appraisers viewing property for pennies on the dollar for what they are used to, and have no incentive to spend the time and put in a quality report. They have to see twice, maybe even three times the number of properties to make the same amount of money. You cannot see properties when you are analyzing comparables at a computer. Thus enters LOW APPRAISAL VALUES, HORRIFIC COMPS, and the exit of customer service.

While not all appraisal reports are coming back low, a lot of them are. What do you do in this case? What recourse do you have? HVCC forces appraisers to respond to comments and additional comp suggestions regarding the appraisal report in question. If you have a low appraisal on your deal here are the steps you and your lender/real estate agent should take:

1. Get the agents together and come up with three new comps for the home under contract. Make sure these homes truly are comps (i.e. less than 5 miles away, sold in the last 6 months, similar square footage and amenities). If additional comps are outside of these listed areas, your not going to like your results.

2. Have your lender submit the comps to the appraisal management company for review and comment. Usually the AMC will give the appraiser 24-48 hours to make any changes. CROSS YOUR FINGERS. Appraisers do not like to be told how to do there job.

3. If the appraiser does not adjust the value, have your lender take the appraisal to the appraisal review board inside of the lenders offices. Sometimes they will override an AMC appraisal but you need strong compensating factors (large down payment, typically 20%, great credit, cash reserves). Lenders want that type of paper and don't want to lose it to a bad appraisal.

If that does not work...get ready to renegotiate the contract. There are a lot of movements underway to repeal this aberration and hopefully it will be repealed soon.

I will keep you updated with more information as it comes along. Thanks!