Or What’s Gone Wrong With the Appraisal Industry?
Yes, we all know of the fallout with subprime loans & homes being grossly overvalued.
Short history… Lenders used to work very closely with certain appraisers. As everything was going crazy they told their appraisers to appraise a property for the value that the lender wanted otherwise they would use someone else. This was the appraisers’ lifeline, so they had to do such. And therefore, values went up and up and in many cases at astronomical rates.
We know what happened with most of those loans and are seeing the fallout of such. Unfortunately, in their efforts to correct a wrong, those in charge are going too far and after the incorrect parties. Andrew Cuomo, Attorney General of New York, helped push us to HVCC (Home Valuation Code of Conduct) which went into effect May 1.
Update… Now lenders have to go through a management company who in turn mete out appraisals. The problem here is that this company takes a portion (40% or more) of the cost of the appraisal. You have to understand that the management company is profit oriented, so you can only gather that they choose the lowest bidder. Now seriously, think of this. How do you expect to get quality work for minimum bid? I’m not saying it can’t happen, but ...
Many of these appraisals are being performed by appraisers who are outside of the market. Therefore, they are most likely not as well informed on those current market conditions and nuances that affect each individual market.
To further complicate matters, I cannot talk to the appraiser, nor can the lender or anyone else who’s considered ‘an interested party’ in the transaction. So if I want the appraiser to take into consideration other comparables, I would have to contact the management company with this information.
Now, there is a way around this, go VA or FHA. You see, HVCC only applies to loans of 1 – 4 family residential units that are sold by Fannie Mae & Freddie Mac.
The use of HVCC is affecting all of us, not only the lender, appraisers and Realtors, but also YOU – the buyers, sellers and homeowners.
The market has been correcting itself. Sales have risen, the inventory is dropping and median and average sales prices are in many cases progressing in an upward trend. With the use of HVCC we are seeing many homes being undervalued and therefore the ensuing loss of value to the community and in many instances prospective sales that are not coming to fruition.
There is a move about for an 18-month moratorium to HVCC. This is necessary for the market to continue to correct itself. This is also necessary for HVCC to be corrected itself. Our legislators need to do the right thing to help us protect our home values.
Till next time….Marc It Sold!