August 13, 2009

Home Value Code of Conduct (HVCC)

New legislation and policies governing the lending process are now in place and having an impact… good and bad. One of these changes is the new Home Value Code of Conduct or HVCC. The intent of this change is to give appraisers a space, free from outside influence, to give lenders a correct value for a home. The intent of the change is good but there are always unintended consequences with any new piece of legislation.

Before HVCC, lenders were able to choose their appraisers and could exercise some influence on those decisions made by the appraisers. In addition, Realtors could also contact appraisers and send comparison properties used in setting the listing price which also had an influence in the appraiser’s decision. In most cases this system worked well but there were also many cases where some felt the appraisers were being unduly influenced.

HVCC changes how the process work so that lenders and Realtors are limited in their contact with appraisers .

Now the process is that lenders contract with an AMC company who chooses an appraiser and works directly with appraisers. This lessens the outside influences on appraisers and the intent is to give appraisers a path to more accurate appraisals. The intent of the law is good.

There are unintended consequences however that are not good for both buyers and sellers. For example, using the AMC as a middle man means that appraisers are getting less money for appraisals because the AMC is taking a part of that revenue for their services. Now appraisers must do the same work for less money. Some local appraisers may turn down work and as a result appraisers from outside the area are doing those reports. Appraisers may travel 60 to 130 miles to do appraisals in areas that they do not know well. Furthermore, HVCC causes each appraiser to be cautious in the choosing of comps (I would too in these circumstances).

The net result is that appraisals are taking longer and may be lower than the market value causing some transactions to fall apart. As long as our sellers and buyers are aware of the possible bump they are normally OK and can make the needed adjustments.

We had a home in West Point, Utah that had this very issue hit them this month. The seller had to adjust the price and the buyer had to give up some closing costs to make the transaction work.

Posted By: Steve Randall