All is not quiet on the Midwestern front, Posted by Steve

Here in the trenches, on the front lines of real estate in Ohio, we continue to face challenges:

First, there is an oversupply of houses, and home values are still in a general decline.

Second, although the average sale price is up, we have unprecedented marketing times and nervous appraisers (or at best very conservative appraisers). With sales nearly 20 percent below the previous year, many appraisers working on behalf of banks are brought in from out of town appraisal companies. They are only familiar with the market through Internet information. As a result, we have appraisals coming in as much as $100,000 below contract sales price – effectively killing the sale.

Third, too often foreclosed homes have been left without any care by the banks that now own them and the condition is deteriorating. The impact on neighboring homes is devastating.

Fourth, mortgage approvals are taking longer than ever, not uncommonly going beyond contract dates. (So much for “time is of the essence”.)

Two recent Federal Acts: the Home Ownership And Equity Protection Act (HOEPA) and the Housing and Economic Recovery Act (HERA) are contributing to these problems. These regulations were intended to: a) provide greater financial education for consumers, thus aiding them in their financial lending choices; b) create safety checks in the lending process so consumers would not be victimized by predatory lending practices; and c) support more rigorous and transparent regulation of the real estate industry.

However, when Fannie Mae and Freddie Mac adopted the new Home Valuation Code of Conduct (HVCC) to assure appraisers would not be unduly influenced by lenders in the appraisal process, costs rose, while accuracy took a nosedive.

Although the goals are good and necessary, these laws were created and implemented without due consideration of how they would actually work for those of us who are in the “trenches.” As a result, the time delays and cost increases are hurting the very consumers they were meant to protect.

We have heard from many of you, and I assure you that we “get it”. NAR is lobbying federal legislators to correct and modify these laws. We also are pushing for a meeting with Federal Housing Finance Agency Director Lockhart to request a moratorium on the HVCC. Stay tuned for more news on this front next week.

Thankfully, the real estate industry and America’s real estate consumers have NAR to protect and defend us. In time, I hope our efforts will finally bring peace and quiet to the Midwestern front, and to the entire market. – Steve Brown, VP & Liaison to Committees

  1. Get creative, appraiser’s. Start marketing your services to user’s other than the lending industry. They are out there and are willing to pay for top notch services. You’ll be glad you did. – Nelson Boswell, Jr., SRA

  2. I recently experienced a transaction that involved 3 appraisals, with a closing extended to 6 weeks beyond the original close date, resulting in a $30,000 loss to the Seller. Subject property was located in the mountains of Evergreen, Co. Original value of property appraised at $1,299,000. The property was impacted by the current market, resulting in a 2+ year market time. Seller ultimately reduced the price of the home well below market value to $899,000 to get the property under contract. A custom 6400 sq.ft.home on 36 acres with spectacular mountain views. Recevied an acceptable offer in March 2009. An appraisal was ordered which came in at $775,00. This appraiser was not familiar with the Evergreen mountain area. The deal fell. Seller ordered a new updated appraisal for his own information, using an mountain experienced appraiser. The property was appraised to market, conservatively, per the Sellers request. The new current market appraisal came in at $935,000. Due to the new appraisal we were able to put the deal back together. However, Wells Fargo would not accept the appraisal,since it was ordered by the Seller. A third appraisal was ordered, using a different appraiser. This appraiser was familiar with mountain property also. His appraisal value came in at $1,049,000. It is extremely important to use appraisers who are familiar with the area the property is located in to receive an accurate appraisal value. Mountain property has many characteristics that affect property values differently than city property.

  3. James Dunn

    I can see/read that there are a lot of livid people now in this industry. The problem can all be summed up by one word. GREED. I’m a State Certified Appraiser here in Washington State for 11+ years. We all KNOW that Prior to HVCC. A lending institution(s) would “shop” appraisers. If you didn’t hit the mark, they would find some one who would. You could wine, dine lenders and try to build up a client base. But the moment you didn’t “hit their number” your gone. Fine. I’m gone. I have to sleep with myself at night anyway. Lost alot of busniess on this end of the deals. I seen many times here, why do appraiser need a copy of the purchase and sales contract? Where you asleep in the R.E. law classes you had taken? Appraisers need the contract least here in Washington State because of the LAW. We need to know the particulars of the buyers incentives to purchase. Like what is really conveying? Is the pool table, hot tub thrown in to sweeten the deal? Are there any ATYPICAL financial incentives given? The bottom line is that it is the LAW. PERIOD. Least here in WA. Next subject. BPO’s banks are not in the R.E. busniess I hear. Or, are they? They loan on real estate all the time on homes, yet through bad busniess practices like lending to someone who clearly can’t afford the home to make a deal, then wonder why they now possess the home. They now need to “dump” it. Dumping the home makes good busniess sense. So the banks hire someone to do a BPO. NOT AN APPRAISAL. Cheaper $$$$ So a broker sets a BPO. The home is then placed on the market to “move fast” and it does. The problem now is that now home owners must compete with that REO. So down goes the market. Mr./Ms. Appraiser dont use that REO. Why not? It is a bona-fide sale. Set by a broker who “knows the market”. Yeah right. If realtors/brokers opionions of values were true. Why dont lending institutions just take your word for it? Because even if your a buyers agent or sellers agent you have an INTEREST in the outcome of the sale. I don’t. I dont care if the home is purchased for $1.00 or $10,000,000, My job is not predicated upon what the sales price is. Alledgedly, we have a seller looking to sell for the most $$$. A buyer wanting to purchase for the least amount of $$$. Agents wanting a % of that closure. The banks want to know if the home is worth the risk. Mr/Ms appraiser is it? Well that depends on the market now doesn’t it? I’ve seen appraisals (as a review) that have been done to appraise a value not the home. I’ve seen Realtors use waterfront homes to set a price for view home properties-many times. I’ve dont know how many times I called the listing agents for information and got-“that is not my job call the buyers agent.” How the heck do I know who the buyers agent is? I receive a request for an appraisal. Pull the county records, check the MLS and lo and behold the sellers agent is listed. So tell me you rocket Realtors, with this information given how does an apprasier KNOW who the buyers agent is? You call the selling agent. No, Lending institutions do not provide that information, nor do they provide the P&S contract. GOT IT NOW? We need your assistance to close the deal too. NEXT the HVCC is a mixed bag of B.S. On one hand it is great, in that appraisers are now not strong-armed for values. The bad side is that these companies do slash and steal commissions. They are not interested in the value of the home, the buyer, the seller, the appraiser, the market NOTHING but turn time and fee. Now with the added 1004MC. Yes you appraisers this information is part and parcel of our work file. You all know it takes longer than 10 minutes to gather, analyze then input the data. Make the appropriate time adjustments then explain what you did and why. Please dont give the illusion that it is just a mere 10 minutes more of work. Because it is not. The work load has increased on each appraisal by 15% but productivitiy has been slashed by 50% for less $$$. So stop crying about a slow turn time. EVERYONE is part of the problem. EVERYONE is going to be NEEDED to fix this nightmare. The lawyers/lawmakers are in with the bankers being paid off. We all loose because of it. There is no easy solution. Sorry I at this moment have any to offer. Realtors; provide the appraisers without crying the P&S contract. Without crying. IT’S the LAW. We appraisers dont know who the buyers agents are. You dont want to provide the P&S contract, fine? Your commission will be delayed in coming because the appaiser NEEDs that contract. Appraisers: if the selling agent doesn’t want to provide the P&S. Call the home owner. Tell them that their agent is holding up the deal. Realtors, price the homes REALISTICALLY. Dont produce a CMA that will not do a seller any good just to get the listing. Oh, no one would do that now would they? Oh the market has made a down turn MR/Mrs Seller we need to lower your asking price. NO Realtor would do that would they? Greed, Greed is the word. Haven’t you heard?

  4. jean

    I agree with the information about some appraisers not being qualified to do some appraisals.
    I did not see any mention of Lenders etc. “do not use this appraiser list”. The lender would prefer to have the appraiser doing inferior work, but hitting the sale price number on the “use this appraiser list”.
    The lenders putting a good appraiser on this “do not use this appraiser list” cannot be challenged. They don’t have to tell you what you did or let you see the information used to put you on this list.
    It is not hard to find something wrong with any appraisal. I have had this confirmed by appraiser instructors one saying “don’t you just wish all your old appraisals would disappear”? Once an appraiser is on “the do not use list”, there is no time limitations (this can be 10 years or more). Some mortgage companys that have gone out of business pass their “do no use list” along to where ever former employees go. Some mortgage companies share this list with other companies. An appraiser can be on the “do not use list” by a mortgage company the appraiser has never worked for.
    Lenders should wipe clean this slate and start over with something more fair. A chance to challenge the review appraiser would be a good start. Also the lender could require the appraiser to take an appraisal course and then put them back on the list.
    Appraisers should consider joining the Appraisal Institute. The Institute should consider again merging with the NAR for bigger member numbers.
    This would include the Accredited Appraisers supported by the NAR.
    I have found some appraisers are not always up to date with sales in their own town. Going out of town, gives you a wider view of the real estate market. Some Realtor list homes that are not in their own county.
    Some lenders use review appraisers that have never had to complete an appraisal on their own. They just look for things that they can pick apart, like comps are too far away or too old.
    Most businesses use a pay scale based on education. Lenders pay all appraisers the same whether they are licensed,certified residential or certified general appraiser.

  5. Richard Hurtig

    The HVCC will not solve any issues as long as it remains in it’s present form. It creates a monopoly in favor of AMC’s which are completely unregulated and derive their income from the appraisal fee, therefore volume and low cost is critical to their bottom line. Many of the quality issues with AMC’s happen because they are hiring Staff appraisers who are paid a salary (20k to 35k per year) and are required to complete a minimum monthly volume – so the AMC makes a higher profit by using a staff appraiser rather than a more experienced (and costly) panel appraiser. I have had firsthand experience with this issue with Quantrix, who manages appraisals for Chase. I and several of my coleagues who have been longtime approved panel appraisers have been discarded in favour of staff appraisers who have little or no appraising experience. The worst part is having to then do field review work on the staff appraiser’s file because underwriting would not accept their appraisal due to poor quality.
    AMC’s should be required to charge and disclose the management fee separate and apart from the actual fee paid to the appraiser. In addition, AMC’s should be liable for the reports they put into the marketplace. These changes would go a long way in forcing AMC’s to hire competent appraisers and the appraisal fee would not be forced down because it would go in full to the appraiser (which is what the consumer intended and is led to believe anyway). As for the notion that an appraiser cannot communicate with a lender, there isn’t a single industry in America which has been subjected to such an egregious infringement on it’s ability to compete in the open market. Being a competent professional does not immediately imply dishonesty, however the HVCC is based on the assumption that there is immediate collusion between an appraiser and a mortgage broker. While it is true that there are dishonest appraisers, loan officers and realtors, the vast majority are honest professionals. I have been an appraiser for seventeen years. I have developed relationships with kowledgeable realtors which have broadened my understanding of the market I appraise. I have (or had until May 1st) an appraisal practice with many broker clients who have been doing business ethically for years. When I have encountered broker pressure I have simply declined the assignment. As a result of the HVCC, my business has been destroyed and in order to survive, I am now reluctantly working with AMC’s at lower fees and with the same or worse pressure than I ever encountered from mortgage brokers. If the HVCC is revised and AMC’s are regulated to ensure a fair system that does not exploit appraisers and consumers then it could be a good thing. Unfortunately in it’s present incarnation it’s only achievement is forcing competent appraiser’s out of the industry, undermining appraisal quality and adding unnecessary costs to the consumer.

  6. CJ

    Since when did Realtors become the experts in the valuation of real estate? I find it truly offensive and professionally irresponsible of Realtors (including Lawrence Yun and Charles McMillan) to publicly blame appraisers when the sales prices are not supported by the market.

  7. Good article!

  8. Patricia Bolle

    Appraisers are NOT guided by Fannie, Freddie or FHA. They follow USPAP (Uniform Standards of Professional Appraisal Practices) which were enacted by Congress. Fannie, Freddie and the like can require additional guidelines but they cannot violate USPAP.
    One poster wrote: “With a refinance, no value can be provided to the appraiser–I can’t even let the appraiser know what the home owner thinks the value of their home may be. The home owner, if the appraisal comes in low, is out the appraisal fee (typically around $500). Prior to HVCC, my appraiser could call to give me a heads up that the home was not going to appraise high enough–providing an option for the client to cancel the appraisal before it’s complete and saving them some of the appraisal fee or I could contact my appraiser to ask for a value check prior to ordering the appraisal. Not so anymore.”
    Any appraiser who did this was violating USPAP.
    Any appraiser who operates out of their “normal area” and does not perform due diligence in obtaining proper knowledge is violating USPAP. IT DOESN’T MATTER IF THE REPORT WAS DUE YESTERDAY!
    Sales comps are to be as current as possible. Some lenders want sales closed within the past 60-90 days. Older sales can be included as fourth, fifth or sixth comps but do not be surprised if time adjustments are done lowering the comp value. Many areas are still decreasing in prices month over month.
    In regards to appraisers asking what the “sale price is”. According to USPAP, the sales contract is to be provided to the appraiser. This is in order for the appraiser to see any sales concessions such as the $20,000.00 boat in the garage being included in the purchase price, or the furniture being included, or money going back to the buyer at closing.
    I am a Realtor in NJ who has taken the required courses for Certified Residential Appraiser and I strongly agree the Real Estate agents should be required to take at least basic appraisal courses so that they understand the process and know what they are talking about. I also feel it should be required of anyone involved in the mortgage process so time is not wasted with unintelligent questions.

  9. Anonymous

    Appraisers are want to be Realtors, but can’t handle the challenges of being a realtor.
    I’ve been asked several times, by appraisers “what’s the real estate market doing”. That scares me.

  10. Anonymous

    I had an appraiser from Indiana come out to a town located near the Illinois/Wisconsin border to appraise a property located in Illinois.
    Guess what…it didn’t appraise and when I confronted him, he agreed he under valued the property and acknowledged he wasn’t familiar with area.
    Ya think….

  11. Stephanie Russo

    I am a NYS appraiser and strongly feel that these managmeent companies are not nescessary. There is no need for a 3rd party to do meaningless paper work and schedule, and deliver our appraisals. We complain about how this economy is loosing money and jobs so why pay a middle man money for a job we are eligable and went to school for. The problem was not with appraisers it was with underwriters approving loans that were clearly fraud, and going stated. Now that we have full doc it will show whether a person qualify’s for the loan. So to put a managment company in place were its not needed and to pay them to do a job were us appraiser were fine at doin is rediculous. I think it should go back to the way it was its clearly causing to much conflict and was not sought out properly.

  12. Don Grafues

    Fannie Mae and Freddie Mac rules inhibit refinancing.
    I attempted to refinance my home. I have a manufactured home, site built guesthouse and barn on 5 acres in Saint David, Arizona. I worked with the National Bank of Arizona on a refinance. Had I been successful, I could have lowered my monthly payment by $300. Cash I could have used to stimulate the economy with additional spending.
    My wife and I have credit scores between 800 and 811. We have an excellent credit history as well as adequate resources to justify a refinance. With the refinance we were asking for no cash out, just enough to pay off the current mortgage and cover refinance charges.
    When the appraisal was done, the results were lower than expected ($208,000) but still resulted in a loan to value ratio of 77%.
    However, living in a rural area with few sales (driven by the stability of the neighborhood and the reluctance of people to sell due to home prices) the appraiser had a difficult time finding comparables. One was 10 miles away. One sold 9 months ago. None of the comps had a guest house. Because of the size of the adjustments to arrive at “comparable sales” the appraiser had to make large adjustments as a percentage of the comparables’ sales price.
    My loan was rejected because the adjustment percentage exceeded Fannie and Freddie guidelines.
    I spoke with the VP of Real Estate Lending at National Bank. He was sorry that we could not get a loan. He wanted us as borrowers considering our credit record, assets and amount being borrowed. But by exceeding Freddie and Fannie guidelines, the loan was not saleable in the secondary market.
    I suspect I am not the only one in this situation. Perhaps more emphasis should be placed on the credit worthiness of the borrowers and not on an arbitrary guideline from Fannie and Freddie, especially in this market environment. Is it perhaps time to review these guidelines?

  13. I am working in a market where certain desirable and well-priced homes are still attracting multiple offers.
    One home had two offers at $212,000 and got an accepted offer. Appraiser came in and appraised the home for $190,00 and flagged windows for repair on this 100 year old home. Buyer had 20% down on a conventional loan, and an ESCROW was required for window replacement!
    Another home in an area of $400,000 homes was priced at $259,000. Three offers came in at or above asking. An out-of-STATE appraiser came in and made a low appraisal, and the loan was turned down.
    Some questions:
    –How can appraiser dictate and lower the price of the home whe multiple buyers are willing to pay the market price?
    –How can an appraiser and bank get into dictating repairs to a qualified buyer with ample cash getting a conventional loan?
    At his time, it appears that only homes in perfect condition can be sold for a reasonable market price, and these homes are being comped out by appraisers who have no familiarity with the area, resulting in low appraisals which are dragging down market prices even further.
    Another persistent problem is loans being turned down for private mortgage insurance because the appraiser checked the box on the form for “declining area”. Haven’t ALL areas in the U.S. been affected by a decline? What area hasn’t?? Appraisers seem to use no consistent definition for this this term, even using it in areas still getting multiple offers.
    The last 5 deals I have done have required 2 appraisals on each home, due to incompetent appraisers. 5 closings have been put off for a week or more. Buyer’s and sellers lives have been put into disarray due to last minute loan cancellations or changes. And these are with the qualified buyers that used to be no problem.
    A lender who called me to call off a closing 45 minutes before it was scheduled explained, “There is no problem with the loan, they are approved– we just can’t get the funding”. As if this was somehow supposed to reassure me and make sense.
    If HVCC and nonsensical bank lending rules are allowed to continue in this way , by next year we will not be selling ANY homes.

  14. Michael Payne

    I’ve been reading the attached blog responses from both sides (Realtor and Appraisers), however there isn’t much mention of the VA Appraisals. I am a Managing Broker and recently (past 3-4 months) I’ve had one agent after another come to me after they receiving a VA Appraisal for a purchaser and it came in at $20,000 to $60,000 below the Contract Sales Price. What usually happens afterwords is the contract will die, because the Sellers either can’t afford to, or won’t reduce the price agreed upon.
    I remember when I first started in real estate and I was speaking to a VA Appraiser (I wish I could remember his name), he said that he was told that his Appraisal “was not to be the highest price in the neighborhood”. What is happening now is the same thing that we were experiencing with VA Appraisals leading up to last real estate boom.
    I understand the VA Loan is a 100% loan. However, for a VA Appraiser to be intimidated into coming in with a low appraisal just to reduce risk on a 100% loan is criminal. What good did the raising of the VA Limit if the Veteran can’t even purchase a home due to the type of appraisals that are coming in. I’m a retired 24 year Army Veteran, and I have seen this done since the day I purchased my first home.
    And don’t try and challenge the VA Appraisal, because I’ve yet to see any VA Appraiser allow that to happen. Example (and if a VA Appraiser can explain this I’d appreciate it) why would a VA Appraiser use three(3) foreclosure properties as comps, when there are more than enough re-sales in a neighborhood? I have my opinion, and that might be because they know the foreclosures traditionally sell for less than a re-sale, which helps them justify their low appraisal.
    What is happening is a Dis-service and a Slap in the face of our Veterans!

  15. David Johnson

    The appraisers’ comments I have read adequately defend us, so I’d just like to ask a question of the agents who want to blame their problems on appraisers: what do you think an appraiser gets out of an appraisal coming in below a contract price? A higher fee? Do you thing we e-mail the appraisal to our friends & have a good laugh? I can only speak for myself, but the only thing an appraisal coming in below a contract price does is slow me down because instead of double checking my information it gets triple & quadruple checked to make sure I’m being accurate. I usually sit on it for 1/2 a day or a day & look at it again, just to be sure. But in the end, my job is to be accurate, honest & thorough. I’m not hired to help close a loan; I’m hired to provide reliable information to help my client decide whether to make the loan or not. It is the agent’s job to sell, and if he or she can get a contract above market value then great. Just be aware that the appraiser has to use the BEST sales available, and those sales might not be the highest sales.

  16. k Thiel

    Wow, I am amazed that real estate agents are so “out of touch” with what is happening in the mortgage and appraisal world in the past 8-10 months. Look at the changes in the market, look at the changes in the lending world, then try to understand that as an agent you need to know “turn around” times & “market decline” in your market place.
    You should also be talking with your buyers so they understand what the market is doing and how long it may take to get financing finished up… inspections, appraisals, ect. to go to close.
    I am both an appraiser and Real estate broker 18+ years…. We all need to work together to fix this problem… it is no benefit to the appraiser if an appraisal comes in low… just more work.

  17. Alan Joyner

    Although primarily an appraiser, I am also a Realtor. Quite a few of the comments indicate a basic lack of knowledge about the appraisal process.
    The ‘out-of-town’ appraiser being used is a real problem because you are required to be “geographically competent” which means you know the local market. You can make yourself competent by learning that market just as you study the main market where you work. However, with the AMC’s eating a large portion of the fee you would have difficulty in spending the time required to become competent in a different market – especially for just one or two appraisals.
    During the height of the boom we got lots of phone calls that started something like this: “This is John with XYX Mortgage. I have an appraisal at (address). You can have this assignment but I need the house to be worth $(dollar amount).”
    Our response was always the same: “What you are asking is illegal in Virginia and we don’t do that.” The next sound we heard was the phone hanging up on the other end.
    The appraiser is just about the only person in the whole real estate process whose pay is NOT based on a percentage of the price. Therefore we have no incentive to come in either higher or lower, just to try out best to determine the actual market value.
    HVCC will not fix anything, it will just make matters worse.

  18. From an appraiser’s viewpoint, realtors must understand that value does not necessarily equal price. In years past, many appraisers just worked backwards from the price to make the deal work. (Not us of course). Now, when appraisers realize that they may have caused some damage and may actually be doing appraisals… wow. Tell the buyers to check comps before making offers.

  19. Tina Langton

    As an appraiser that is required to join the local realtor association and contribute to NAR in order to access MLS data, I find it offensive to receive an email from the President of the National Association of Realtors blaming appraisers for essentially killing their deals.
    As we have seen in the past 2 years, the appraiser has been held responsible for providing inflated values that contributed to the record number of foreclosures. While some appraisers were unethical in their valuations, the vast majority provided reliable reports but yet we are the ones being sanctioned, losing our licenses and/or serving prison terms. As the lowest paid party to the real estate transaction, the only incentive to provide a misleading report is to “make the deal work” for the buyer, seller, agent and mortgage company. Our fee is the same whether the value supports the contract price or not, whether the sale goes through or not. No appraiser looks forward to the pressures involved if the contract price is not met and there is absolutely no incentive to come in below the sales price.
    The current market has proven that market value may or may not equal what 1 buyer is willing to pay for a property. Our responsibility to our client (the lender) is to provide a value that a typical buyer in that market is willing to pay based on recent sales of similar properties. Just ask the lenders sitting with millions of houses with liens signicantly higher than what the market is willing to pay, or homeowners that are unable to sell or refinance their loans because they now owe more than their homes are worth, if market value always equals the negotiated contract price.
    We provide an unbiased opinion of market trends and report what the typical buyer would be willing to pay for a comparable house in that neighborhood/market. It is unfair to place the blame at the appraisers doorstep when the market data does not support a contract price and accuse us of purposely attempting to “kill your deals”.
    Please remember the appraisers’ role is critical and, while there are a number of appraisers that made poor decisions and provided misleading reports, the majority are trying to provide a comprehensive report that allows the lender to make an accurate and informed decision regarding their level of risk. We are all partners in the transaction and should support one another and our industry as a whole.

  20. David Goodridge

    I have always had issue with the appraisal that comes in low ($1000-$5000) until the apprasier sees that he read the purchase price wrong on the Buy/Sell than comes back and says that the value is there. I just recently had an appraisal here in Billings, Mt that came in $100 short, thats right one hundred dollars off. This was a young appraiser who has not been in the business long and now gets just as much works as the good appraisers that I have used in the past. Capitalism rewards the hard working and knowledgeable business person. With these new plans in place I am more scared of where we are heading than where we were. Just me

  21. Vicki Beck

    I just got an appraisal back on Friday the 26th for a closing on July 1st. It is $12000 low. This home is remarkably well kept and has numerous updates. Along with expansive landscaping and decking with a well maintained pool. It is devastating for the sellers. They truely have been legally robbed of their greatest asset, and I have had to stand by and watch as they are pillaged!

  22. Donald L. Horton

    I am and have been a Residential Appraiser and a Real Estate Associate Broker for the past 37 years. I have read 23 pages of comments regarding the current problems with the lending/brokerage/appraisal problems we are currently experiencing. Every aspect of the process has been attacted as being the problem. Lets’ face reality folks. First, the Gov’t. in 1999 Clinton Adm. informed fannie/freddie they wanted to lower the mortgage standards so that every American could afford a home (The American Dream). They admitted at that time that some would be foreclosed upon. We are all to blame for the results as we all took advantage of the opportunity and did not forsee the future to the extent we are currently experiencing. We all abused the system to some extent (some more than others) but we all have to share in some of the blame. Let’s all stop complaining and work together to solve the problem. We are big enough to do that. The HVCC has infact created a new opportunity for the AMC’s to skim a portion of the fees from appraisers. The intent was probably good but again some are abusing the system. AMC’s in many states are not required to be licensed. Michigan is currently drafting proposed language to require AMC’s to be licensed in the State of Michigan. This is a very complex issue. However, if we all work together give/take and compromise, we can accomplish an end result that works for ALL of us. Donald L. Horton Certified Residential Appraiser, Michigan

  23. Ray Sablick

    In the past two months there has been a great response by mortgage brokers, appraisers and Realtors to the NAMB and NAR initiatives’ calling for repeal of HVCC or that a moratorium be placed on the effective date of the HVCC.
    It is now imperative that an equally strong response to HR 3044 legislative initiative be made by writing to your congressional House Representative urging their support fro HR 3044. The following link will identify your district House Representative and includes a space for an e-mail response from within the site:
    My request to my Representative Congresswoman Debbie Halvorson follows:
    We strongly urge you to support the moratorium on the effective date of HVCC suggested in HR 3044.
    The Home Valuation Code of Conduct (HVCC) is not a law but an agreement between Fannie Mae and Freddie Mac and Attorney General of New York to avoid having the AG of NY filing a suit against Fannie Mae and Freddie Mac for failing to make sure that appraisals weren’t being inflated to pump up home sales. HVCC covers any mortgage guaranteed by Fannie Mae and Freddie Mac which means the majority of home loans, and, bars loan officers, mortgage brokers and real estate agents from any role in selecting the appraiser. This in turn has enabled a limited number of unregulated AMCs, including some AMCs owned by banks, to gain a virtual monopoly over the residential appraisal business.
    Since HVCC’s initial effective date on May 1, 2009 the HVCC requirements have resulted in increased cost to consumers, decreased quality of appraisals, delays in real estate sales and mortgage loan transactions; devastating loss of mortgage broker and appraiser jobs, reduced appraisal fees to appraisers, and, created a monopoly for unregulated appraisal management companies (AMCs) that has enabled the AMCs to increase appraisal fees to consumers, reduce fees paid to appraisers and realize obscene profits.
    The independent HVCC agreement was not subject to the same legislative scrutiny or hearings normally afforded significant changes affecting such a large number of citizens. It is incomprehensible how HVCC was allowed to become effective without such safeguards: particularly, during one of the worst economic times in the real estate sector and at a time when unemployment is in the 13% range in the Joliet area.
    We will appreciate your support of HR 3044 so sufficient time will be afforded affected parties to voice their concerns.
    Ray Sablick

  24. Lloyd Leighton

    I appreciate what you are doing for us at N.A.R.
    I hope you won’t mind me taking a few moments to mention one thing that I don’t hear anyone else talking about.
    The banks are too powerful and continue to muck up the system.
    In the old days, I was on FHA’s panel of fee appraisers. When a lender received a loan application, they called up FHA and were assigned a case number and an appraiser. That was a truly independent process. If the real estate agent, lender or borrower didn’t like the appraisal, they could request a reconsideration of value. However, at no time was the appraiser’s job in jeopardy simply because they didn’t “hit the value.”
    That began to change in the late 1980’s when lenders (loan officers) began to pick their appraisers. Of course, wink, wink, the appraisers signed a certification that their appraisals were not tied to their compensation. What everyone also knew was that, if they didn’t “hit the value” more than a couple of times, they didn’t get any more appraisal requests from that lender. When the real estate market tanked in the early 1990’s, the banks were able to point the finger at appraisers and avoid taking any blame for their role in pressuring appraisers to “hit the value.” The result was a licensing program for appraisers. That was good for the banks – it didn’t cost them anything and it allowed them to continue with business as usual.
    Now, when it has become obvious to everyone that there is an inherent conflict of interest in lenders choosing their appraisers, they have come up with a new way to game the system. Banks are setting up their own HVCC companies and directing business to them (in business terms, they are creating new “profit centers”). One of these companies is taking nearly $200 of the appraisal fee just for the service of assigning the appraiser. Since many of the good appraisers won’t work under this system, we are getting a lot of low quality appraisers who are not from our area and don’t understand our market. Eventually, we are going to lose a lot of good appraisers and that’s going to create a whole new mess.
    We need to get banks out of the HVCC business.
    A better solution is to go back to the old days and let Fannie Mae, Freddie Mac and FHA set up their own appraisal panels and let them assign appraisers on a random basis. Also, when I was appraising for FHA, they had geographic regions set up so that appraisers were only appraising in areas where they knew the market. These new HVCC companies don’t seem to care about that – it’s all about collecting a referral fee.
    Thank you for your time,
    Lloyd Leighton

  25. Rick

    All my hard work of building a client base of local banks and credit unions has been wiped out. By the way, none of these banks ever gave even a hint of the amount they were looking for on the appraisal. I was actually doing real appraisals and now my business has been destroyed by the HVCC. I will most likely have to look for a new career. I refuse to give these management companies half of the fee for doing nothing. This is ridiculous. The HVCC is NOT WORKING. There must be some government operated AMC’s that are lining their pockets on this new system.

  26. Bill

    There are now appraisers trying to do double the work for half the money to try and maintain their income. Very scary. Most of the people are just slapping these things together without much thought or concern. Unless it was the only appraisal you did that day or it was in a neighborhood with a tight range of comparables, i don’t think you are giving your client much of a product or a realistic value when you turn it in to the client the same day you were there. With so many areas declining, it takes a lot of research to provide an accurate opinion of value. If you think these management companies are any fairer than the mortgage brokers, think again. They are using whoever will do it for the cheapest amount of money along with who is providing the higher values. You might get an order or two and then for some reason be forgotten, oh they found someone to work for less money. I know of one management company that was paying me $65 more per assignment than my friend who signed up several months after I did. Guess who is getting the work now? Not me. The management companies are worse than the mortgage brokers. The consumer is the one who gets the ultimate shaft. They are forced to pay as much as $200 more for the appraisal than what the market rate is and then the AMC keeps close to half of the money for being nothing more than a go between that does nothing.

  27. Peter

    Wow, with all these posts from obviously very professional,knowledgeable people, you would think some politicians would start to wake up to this issue.

  28. Lydia

    I recently agreed to sell my house here in Albuquerque for 205K. This was about 20-30K less than what I would have gotten for it a couple years ago, but given the current economic climate, I was satisfied with the offer, and my buyer felt that she was getting a good deal. I checked comps beforehand, and felt that the house could easily appraise for up to 210K. The appraisal came in at 190K, and the strangest part was that the appraiser called me (the seller) prior to turning in his report as a “courtesy” — and purportedly, to give me an opportunity to dispute his numbers. I spoke with several realtors and appraisers familiar with the area (all of whom found the deficit surprising and unfounded), and researched the comparable sales he was using. I then went back to him and explained my findings: two of the properties were in much more high-traffic locations, one directly opposite a school, and the other directly opposite a development that has now been shuttered and derelict for over two years. (My house is on a quiet section of a tree-lined street a couple of blocks from a bucolic park, and the prestigious Country Club area.) One of the comps had a yard of pure dirt (easily and totally visible), and the other two had only small amounts of outdoor space, while my property was a double lot with fruit trees and extensive landscaping front and back. Moreover, my property had a newly renovated guest house with a 3/4 bath and working fireplace. When I pointed out that none of the comparable properties had guest houses, and that I had received no upward adjustment in the appraisal for either a second fireplace or (what is effectively) a third bedroom, the appraiser told me that his “experience did not indicate that people prefer three bedrooms over two, or having a guest-house to an extra bedroom inside the main house.” Besides these statements contradicting one another, they are patently absurd; as a seller, a landlord, and a human being with common sense, I know that an extra bedroom or lack thereof is often a prerequisite or adeal-breaker, as the case may be.
    My buyer was sympathetic and cooperative, and asked to have a second appraisal done, but because of HVCC rules that went into effect in May, this was not an option. Ultimately, the appraiser upped his number to 195K, and I sold the house for 10K less than a willing and happy buyer was prepared to pay.
    In hindsight, I wonder if the appraiser was expecting a bribe — he continually referred to his calling me as a “courtesy” and delayed submitting his appraisal for days. I finally had to ask him to please send it in, whatever the value, as we were less than a week from closing. It may be worth mentioning that this appraiser — who is also a real estate broker, and was a developer/investor on a property purchased by friends of mine a couple years ago — is the same one who, as the fourth appraiser commissioned, “found” an additional 30K in value on a home purchased by another friend of mine (also a couple years ago). Other than the bribe possibility, the only thing I can think of is that this guy was in some way trying to “atone for past sins.” Whatever his motives, the HVCC guidelines — which prevented us from having another appraisal, and from countering the valuation to anyone but the appraiser himself — cost me $10K (essentially all of my profit), and nearly cost my buyer the home she wanted. But beyond these personal losses, there is the disturbing fact that a burgeoning yet vulnerable downtown neighborhood almost took a hit as well. If one thinks of this happening on a widespread basis, the costs — all of which are ultimately personal — are enormous.

  29. Tim

    Wow …..Lots of comments.
    This problem is not so much with the HVCC. The blame rest soley at the feet of big banking.
    HVCC does not mandate use of AMC’s. In fact they are a liability to the lender as they are responsible for their actions.
    Part of the problem is banks have control or an interest in any AMC.
    As far as “low appraisals”.
    Perhaps appraisers should share their “instructions to appraisers sheet” that they get with each order from all the banks and the AMC’s.
    Big banking has a monopoly on the valuation services industry and also “influence” over the appraisers (AMC employed or not). Reporting must be vanilla, nothing complex. If it can’t be scanned by robotic “review” for the lenders critical criteria in a few seconds its failed. Doesn’t matter if the reporting and value are a correct reflection of the market the lenders cannot determine that. They got rid of qualified underwriters years ago in favor of cheap “underwriting techs” with the checkbox sheet. Gone are the days when lenders had real live underwriting who had taken and passed the appraisal 101 course. That cut into profit.
    All this is about bank profit. If the lenders would have followed FIRREA, TITLE XI from 1989 instead of figuring out creative ways to acheive further unearned profits at the risk of quality control we would not be in this mess.
    Get rid of AMC’s and hire qualified undwerwriters and suopport staff. Let appraisers do their job and the markets will return to some degree of stability. But be aware of how severe this problem has become. We have millions of foreclosures yet to go through.
    The definition of market value has not changed, only the motivation of those who want that definition slanted a certain way. Remeber the first part of the definition “Cash or cash equivelant”. Suppose that was the only way you could sell real estate was for cash. How would marketing change ? Prices ?
    Pressure big banking if you want change, not the government. Most likely the repsonse you will get is that if you don’t like AMC’s don’t use lenders that use them. Its not required under the HVCC.
    Lending standards to stringent ? Supply and demand, find a lender who is better able to take risk.
    The market is going to be low for some time until big banking spends some money to get their regualtory house in order and hire competent people.
    AMC’s are gone. They have caused more damage than the profits they generated for years.
    One word of advice to big banking though;
    If you pay peanuts you get monkees !

  30. I am a Loan Officer and I have come across another situation where the HVCC can cause a major problem for home purchases. A client of mine just went under contract on a purchase of a second home. It is a condominium. Getting the condo projects approved by lenders has become much more difficult nowadays. In the past, if a lender turned down the condo approval, I would just resubmit condo docs to another lender.
    Now, thanks to the lovely HVCC, if a lender doesn’t want to lend in a specific project, I will have to have a 2nd appraisal done. Condo approvals require the appraisal to be submitted along with a stack of other documents. Even though the HVCC doesn’t disallow transferring of appraisals, none of the banks will allow it. I can’t really blame them though. It’s difficult to guarantee that a transferred appraisal complied with the HVCC so it’s not worth the risk of funding a loan that Fannie Mae or Freddie Mac may refuse to purchase.
    I told my client about the situation. He said that this new code appears to be one of the most useless and illogical regulations ever written. It’s hard to disagree with him. He may end up paying for 2,3, or even 4 appraisals just because he is purchasing a condominium.

  31. I am a very active, long-time California Realtor and wife of a real estate appraiser. I was also operations manager for an appraiser firm for one year in the early 90’s. Despite the obvious flaws in the HVCC, it comes as a result of countless instances of over-inflated values produced by countless appraisers over many years. At the core of this problem is the pressure and threat by loan officers to (mainly) fee appraisers to produce the right value to “make the loan work” along with the threat of “no more orders” if they do not perform. Coupled with this is the problem of producing a comprehensive, thoroughly researched evaluation within a very short time for a fee that has only risen from about $250 to $400 in 16 years. Its true that USPAP and ethics should prevail, but the system as it has been, due to the reasons listed above, is a breeding ground for unscrupulous appraisers-after all, they have to eat! I have had to review over-inflated appraisals at the eve of listing a property, as I try to re-educate the clients as to the true market for their homes. I know who these appraisers are, and wonder how they can sleep at night. They are the ones bringing donuts to mortgage bankers today…hoping for a bone. Although a middle manager, in theory, works to separate the loan officer from the appraiser, the sad shame is that a company such as Landsafe (originally owned by Countrywide, now BofA), takes a cut of a fee already too low to begin with. Look at the result–the attrition rate of qualified appraisers is increasing. Its a dysfunctional system that has not been made better by the new “code”. Its time for appraisers to get organized and for the rest of the mortgage industry to take a hard look at their ethics in making loans.

  32. Margie Lutz

    As a full time appraiser and part time broker, I can sympathize with both sides of this issue. But one thing is for sure. The big banks put us where we are today. It started with them and will have to end with them. But will it ever end when they have the big bucks to pay the lobbyists? Does the HVCC work? No, but at least the lenders (big banks) can no longer (openly) threaten or manipulate. And the new 1004MC that is required on most appraisals now, does it help? No, but the lenders (big banks) now have the information on their favorite checkbox format. Although the banks are largely responsible for the current problems, dishonest appraisers, greedy builders and commission driven loan staff and real estate agents have been generous contributors to that same problem. Most real estate agents won’t take the time to give thorough descriptions of the properties they have listed and won’t return phone calls to appraisers wanting more information. Most appraisers would love to know that they are comparing apples to apples when selecting comps. In most cases we have not had the priveledge of visiting the comps that we use, so MLS info and tax info is all we have. (for those of you who ARE diligent, I thank you) And sorry to disappoint, but not all REO properties have been trashed. (yes, some have)So what about the theory of substitution? If there have been 10 sales in a subdivision and 8 of them were REO sales, does that make the 2 market sales more valuable? Use common sense people. It goes a long way. I agree that appraisers need to organize. Hey, how about the NAR? Most of us are members you know. If it takes changing the way things are done in a way that will really and truly make a difference I am all for it.

  33. Ray Sablick

    This HVCC Petition has already been signed by over 65,000 people and the momentum is starting to mount for repealing or at least placing an 18 month moratorium on the effective date of this poorly conceived HVCC “plea bargain agreement” between Fannie Mae, Freddie Mac and the AG of NY.
    I urge all concerned parties negatively impacted by HVCC to sign the petition and comment on how HVCC has negatively impacted your business.
    Ray Sablick
    —– Original Message —–
    Sent: Wednesday, July 22, 2009 11:57 AM
    Subject: HVCC/H.R.3044 Call To Action
    HVCC Continues to devastate home values across the US. We fear that with higher Fannie and Freddie loan limits it will carry through to our former “jumbo” markets, leading the country even further into recession. As we’ve shared, Representatives Childers (D-MS) and Miller (R-CA) introduced legislation (H.R. 3044) requesting an 18 month moratorium on the Home Valuation Code of Conduct (HVCC). H.R. 3044 now has 22 co-sponsors and now is the time to forward our petition to every person you know and every representative in the country. Read some of the comments in the petition and you will soon understand the harmful nature of this horribly misguided code.
    ThinkBigWorkSmall applauds the introduction of H.R. 3044 and would like to thank Representative Childers (D-MS) and Representative Miller (R-CA) for their continued efforts and leadership on this issue but it is not enough. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule. HVCC needs to be permanently reversed in order to restore lower costs to the consumer and to protect the thousands of real estate transactions stalled by this horribly misguided code.
    Please sign and forward the following petition and forward to everyone you know in the industry and ask them to forward to their representatives:

  34. Very nice site!