New Appraisal Rules for Real Estate are Causing Problems

Real Estate Agent with The Buyers' Counsel

House on Money with puzzleIt's pretty standard knowledge that all local real estate markets are different.  Why, then, would it make sense for appraisals to be conducted by out-of-the-area appraisers who lack any knowledge of the area that the property is in? 

Recent changes in the appraisal code have been making this practice become more commonplace. The Home Valuation Code of Conduct (HVCC) was developed by New York Attorney General, Andrew Cuomo in an effort to end corrupt practices in the business of appraising residential properties.  It may have achieved that goal to a certain extent but, in the process, has also caused some problems. 

During the real estate boom, pressure was placed on appraisers to make the value hit the loan amount; a practice which may have had a hand in causing prices and values to skyrocket.  

In an effort to instill tighter controls, new Fannie Mae and Freddie Mac regulations demand that lenders control the choice of appraiser, taking it out of the hands of mortgage brokers and real estate agents to insure that it is an arms-length transaction. 

The lenders' response to this has been to employ third-party Appraisal Management Companies (AMC) to select the appraiser.   

The primary complaint about the AMC appraiser selection is that too often appraisers are being given assignments in areas that they are totally unfamiliar with.  Since property values are highly influenced by location, the out-of-area appraisers are generating some questionable results - results that are sometimes undermining legitimate deals. 

Moreover, it is also becoming more difficult for real estate agents (who are more likely to know the neighborhood and relevant comparables) to provide helpful information to the appraiser.  While the code does not specifically prohibit agents and appraisers from talking, some have interpreted the new regulations to discourage such exchanges. 

In the past, listing brokers have been a valuable source of information to appraisers with data that they might otherwise have no access to.      

The National Association of Mortgage Brokers has been one of the most outspoken opponents of the HVCC.  

Its president, Marc Savitt stated, 

"In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market."

In a letter to Andrew Cuomo, NAR president, Charles McMillian, cited his concerns regarding the new code, including "delays of closings and canceled sales," among his many other grievances.  

As a result of the widespread complaints surrounding the HVCC, the new code of conduct for appraisers, Congress has sponsored a bill that would impose an 18 month moratorium on its use. 

More details can be read in an article at

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Ron Tiller
Star Referral - Grand rapids MI - Grand Rapids, MI

I believe that the moratorium will be imposed. However, Congress moves at a snails pace and they have their hands full riht now

Aug 23, 2009 12:07 PM #1
Joe Jackson
Keller Williams Capital Partners Realty - Columbus, OH
Clintonville and Central Ohio Real Estate Expert

I agree 100% I had a local appraiser give a value of $135,000 for a home under contract. The out of town 3rd party appraiser, WHO NEVER LOOKED AT PROPERTY,  gave it a $122,000 value.



Aug 23, 2009 12:08 PM #2
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass


You may be right about their workload but I hope they get busy on this.  It needs to be done.


That is a shame.  I hope you didn't lose the deal.  Which appraisal won out?


Aug 23, 2009 12:16 PM #3
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Hi, Erica:

If you own an appraisal company, you must be having quite a time with these changes.  I hope it improves.  You have enough on your plate.

Aug 23, 2009 12:39 PM #5
Jim Palmer
Chipola Realty - Chipley Office (850) 638-2777 - Sunny Hills, FL
Washington County, Florida

Just recently attended a realtor lunch where 4 of our local appraisers spoke of the difficulties of dealing with FHA appraisals and how we could all work together to make the deal work. They stressed that we as realtors need to make sure that the info in the MLS is as accurate as we can possibly make it. The other thing that came across during the conversation, was that they are just as frustrated by some of the new rules.

Aug 23, 2009 01:34 PM #6
Claudette Millette
The Buyers' Counsel - Ashland, MA
Buyer, Broker - Metrowest Mass

Hi, Jim:

Appraisers are quite frustrated with this new code because it is actually costing some of them business. 

Aug 23, 2009 03:03 PM #7
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