The Home Valuation Code of Conduct and How it Can Effect Your Home’s Financing

There has recently been a lot written about the relatively new appraisal regulation called the Home Valuation Code of Conduct (HVCC).   The gist of the HVCC is to ensure that the loan broker/Realtor doesn’t unduly influence the valuation of a property by pressing the appraiser for an artificially inflated value.  It does so by preventing those who are most likely to benefit from a home’s inflated value from selecting, retaining, or providing for payment of compensation to the appraiser.  Implemented on May 1, 2009, the HVCC has been a less than perfect solution.

Articles in the San Jose Mercury News and the Seattle Post Intelligencer have explained some of the problems of the HVCC.   Appraisals are becoming more expensive for the consumer while the appraiser is paid less because the Appraisal Management Companies (AMC’s) are taking a part of the appraisal fee to process the order.

In addition, some AMC appraisers aren’t necessarily knowledgeable about the subject property’s local market.  Just yesterday, an appraiser gave me her card which claimed that she specialized in Alameda, Monterey, San Benito, San Mateo, and Santa Clara counties.  Huh, what…that’s five counties and several thousand properties.  Wow, she must be a quick study with a photographic memory and reliable car!  As a consumer, what can one do?

The system should become more efficient as time goes by.  In the meantime, expect delays and budget for higher costs.  It might make sense to have a back up lender in place should the first one not be able to perform.   If possible, you might consider longer periods for financing contingencies and/or longer escrow periods.

KNOW the values (condition, size, purchase price) of comparable homes in the immediate neighborhood BEFORE you ratify a purchase offer.  Have your agent pull up the recently sold properties (within the last 3 months) as well as those that are currently under contract.  Try to get the purchase details of the homes under contract from the listing agent (some may discuss this, others won’t).

The premise of the HVCC is excellent, but it will need some more tweaking if it hopes to eliminate the current problems it has created for the appraisal industry and ultimately the consumer.

Note: the most recent update of the HVCC’s frequently asked questions FAQ’s (July 2009) can be found here.   The update clarifies two points.  First, it states that lenders should use appraisers who have clear experience in the geographic area of the subject property.  Second, it clarifies that appraisers are not prohibited from talking to real estate agents.