Recent efforts to clean up the mortgage industry resulted in the Home Valuation Code of Conduct (HVCC) that I wrote about on April 27, 2009. The HVCC removed all contact between the loan originator and the appraiser. The purpose of the divide was to assure the public and those that provide the cash for mortgages (mortgage investors) that the appraiser’s estimate of value for the property used to secure their mortgage is truly an unbiased estimate of value. This removes the doubt that there was pressure from the hand that feeds them (the loan originators.)
To accomplish this divide, it was necessary to create a “wall” between the loan originators and the appraisers. The wall that is employed by most lenders is an outside contractor known as an “Appraisal Management Company” (AMC) that orders the lender’s appraisals from a list of appraisers or appraisal companies that receive appraisal assignments in rotation.
While employing AMCs may have created more unbiased appraisals, it has also resulted in less control over the quality of the appraiser used to complete the assignment.
From what I have seen, the cost of many appraisals has increased about twenty to twenty-five percent (presumably to cover the cost of the AMC’s involvement) while the quality control has become a total crap shoot because some out of state AMCs use appraisers that are the low bidders (to increase the AMC’s profit margin) regardless of their experience in a given area or with a given type of property. All an appraiser needs is a license to work in that state and a couple of years of experience plus errors and omissions insurance and they get the job. This is particularly problematic when it comes to appraising complex properties.
Some AMCs email all appraisers in a given area and the first one that responds gets the job, provided that the appraiser agrees to complete the appraisal around within 24-hours of the property inspection. Because I have personally appraised property and supervised appraisers for 9 years, I can assure you that a consistent 24-hour turnaround severely limits the amount of research that can be done on the comparable sales (like calling agents to verify information) to assure a quality value estimate. With an emphasis on turnaround time instead of quality, the concept of an experienced and trusted appraiser that delivers an accurate appraisal based on quality research has become obsolete for the few lenders that depended on quality appraisers to assure the integrity of their loans.
While the HVCC was well intentioned, since its inception last May, I have heard almost nothing good about it from agents, lenders, borrowers, sellers and appraisers. By far the biggest complaint that I’ve heard is that most of the appraisers do not know the territory they are appraising in very well and there is nothing that anyone can do about it.
Now that the HVCC has been in effect for over 6 months, I thought it might be time to revisit this topic and get your feedback on your experience with appraisers and appraisals since the inception of the HVCC.
What has your good or bad experience been with either appraisals or appraisers since the HVCC was implemented on May 1, 2009?
Appraisers, here’s your chance to tell the world how you feel about the way that the HVCC has impacted the way that you work.
How would you suggest that the implementation of the HVCC could be improved?
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