The title of this blog pretty much sums up my feelings on the Home Valuation Code of Conduct.
I have been hearing about appraisal problems from my agents and in every state I have visited this past year. Now, I can relate to the appraisal debacle first hand.
I recently sold a builder’s spec home in a beautiful subdivision comprised of two distinct areas: One area of “production” type homes on small lots and the other area comprised of custom homes on “estate-sized” lots.
After two weeks, my clients and I found just the right home for them. In the right setting. At the right price. The buyers were thrilled when we negotiated a final price of $678,000.
The buyers processed a loan through an out-of-state bank, even though the offer to purchase was written not subject to mortgage financing. The bank ordered an appraisal through an appraisal management company in yet another state. The appraiser selected was from another city, not the city in which the house was located.
The appraiser then appraised the home for $420,000.
Let me repeat that: The house appraised for $420,000. That is $258,000 less than the contract price.
In all fairness, comparable sales were relatively few. But the disparity was not because of the lack of comps but because the wrong comps were cited in the appraisal report. There were comps that justified the price paid, not to mention that the buyers themselves felt the price they paid was in line with what they had seen after two weeks in the market.
But after 34 years in the business, for the first time ever, an appraiser was suggesting that I had just oversold a property to two “suckers” by $258,000.
The appraiser was out of his area. He never should have agreed to take on the appraisal of a property not in his area of geographic expertise. He was unable to properly discern the information he pulled from the MLS.
Of course, we immediately submitted other, more relevant comps. We were promptly told they would not be considered. But we were sent the Certificate of Compliance with HVCC and Non-Influence that said these ” ….written policies and procedures comply with the requirements related to Appraisal Management Companies as set out in the Home Valuation Code of Conduct.”
The appraisal system created to help the consumer is clearly broken. We need a moratorium on the implementation of the HVCC. NAR is working on this right now as well as other means of resolving the issue. You can write to your state leaders in Congress and ask them to support a moratorium.
My story, fortunately, had a happy ending. My buyers were able to make up the cash differential as a result of this shoddy appraisal and were able to close. But most buyers can’t come up with this kind of money all the time.
Let’s hope good sense kicks in before this flawed code further harms the market it was meant to protect. – Steve Brown, 2009 NAR Vice President and Liaison to Committees