It'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 NYTimes.com.
Copyright 2009 - Claudette Millette, President,TheBuyersCounsel - 800-392-1446, E-mail
Serving Home Buyers in: Ashland, Holliston, Hopkinton, Natick, Newton, Northborough, Framingham, Sherborn, Southborough, Sudbury, Wayland, Westborough