New appraisal rules come at a cost

New appraisal rules come at a cost

If you're buying or selling a home, you need to know about new home appraisal regulations that could slow the progress of your purchase and even cost more than you might expect.

The Home Valuation Code of Conduct went into effect May 1 and is a set of guidelines between lenders Fannie Mae and Freddie Mac, which combined own approximately 70 percent of the nation's residential mortgages. All Fannie and Freddie loans must now comply with the HVCC guidelines. The purpose is to prevent brokers from choosing appraisers who they think will inflate a home's value.

Many, including some members of Congress, believe that this practice was widespread and helped contribute to the current subprime mortgage crisis. HVCC guidelines require brokers to order appraisals through an independent third-party appraisal management company (AMC), which in turn offers work to appraisers of its choosing.

The new regulations have increased the cost of appraisals — some by as much as 50 to 70 percent. And many professionals in the real estate industry say it's created another problem because the AMC-hired appraisers may not be familiar with the properties they're evaluating.

As a result, some are assessing the values of homes in markets with which they are unfamiliar and getting the market value wrong. Appraisers new to the field may be willing to work for the AMC at a discount, and may not be as familiar with local market conditions as an appraiser with more experience. Quality appraisals often take time and rely on precise market comparisons.

We contacted more than a dozen highly rated mortgage brokers and appraisers on Angie's List, and the consensus view on the HVCC was the cost of appraisals have jumped in price from $300 on average to $500 or more. The National Association of Mortgage Brokers estimates it will cost consumers an estimated $2.8 billion a year in extra fees.

In addition to paying more, consumers must also pay for the cost of appraisals out of pocket and up front, instead of the fee being worked into the closing costs of the loan. Lenders cannot reuse or transfer an appraisal done for a specific loan, so if the deal falls through — or a better deal becomes available — the customer must pay for another appraisal. This has lead to higher fees and increased time in closing a Fannie or Freddie loan.

The old appraisal rules still apply for FHA-backed and other non-Fannie and Freddie loans. As a homeowner, you can still order your own appraisal to assess your home's value before testing the market.

The debate on the benefits of the HVCC versus its potential shortcomings is far from over. In late June, Congress took action, with Reps. Travis Childers (D-Miss.) and Gary Miller (R-Calif.) introducing legislation requesting an 18-month moratorium on the HVCC and a review of the process, which has been sent to committee for review. We'll keep you posted with updates as the tweaking of the appraisal process continues.

Leave a Comment - 5


Pitt Cairn


As an appraiser for more than 16 years, I am of the opinion that a good appraiser can work in any market, anywhere. I have worked the Boston - Philadelphia corridor, and proper research and a good work ethic has lead to supported appraisal values. And, conversely, just because an appraiser is working "close to home" doesn't mean they will get true market value if they are lazy or incompetent.

Brett martin


While not a paid memeber of Angie's List, I am in agreement. Many homeowners act shocked nowadays when I quote a "standard" home appraisal fee- not a marked up appraisal management company fee. Without a doubt, homeowners are paying more for home appraisals now than before the HVCC.

Marc Gottesdiener


What the new regulations have done is to force out the nonserious appraisers and mortgage brokers who were in business it seemed for the money and not for being ethical and honest. That part of the legislation is a good thing. Having third party AMC's control how it gets processed is just another unfortunate business for the large lenders and to the detriment of what was behind the laws. As a general Commercial appraiser in CT it has changed the landscape here in the "land of steady habits". Hopefully the new law that was recently passed will further protect the public and the appraisers who are left in business. Thanks for keeping the readers and members informed.

Deanna McClelland


Not sure that HVCC is BAD for the consumers. It does force the lending industry to be ethical..

Annemieke Roell


The issue of appraisers working in markets they are unfamiliar with is a USPAP violation re: geographical competence. These appraisers should be reported to their state board. The main reason this happens is that the AMCs pay bottom fees which the better educated and experienced appraisers won't accept. In addition, these AMCs demand very short turn around times that won't allow for enough time for proper data research and analysis.The HVCC is BAD for the consumers.

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