It’s coming & it’s coming very soon. Personally, I think it’s going to be good for the business as a whole, it’s going to be good for the market, and ultimately it’ll be good for you – the buyer or seller of real estate.

What is it? It’s the Home Valuation Code of Conduct. That’s a new set of rules that applies to all loans sold to Freddie and Fannie Mae.

Short Version: It’s a set of rules to reduce outside influence and pressure on home appraisers to value a property at a specific value (also known as  ‘hitting a target’)

Long Version:

• People involved in lending can no longer order the appraisal or choose the appraiser.
• Specific types of influence are listed and forbidden.
• There will be a quality control program in place to assess and monitor appraisal quality.
• Lenders will have a “hot line” phone number for appraisers to call to report inappropriate influence.
• Lender must provide a copy of the appraisal three days before closing (subject to waiver by borrower)
• Appraisers cannot bill clients, nor can they take cash payments.

The new process will allow lenders the choice of using an outside AMC (Appraisal Management Company) or use an in house appraisal ordering department, but the internal department must be separate from origination and will be federally monitored.

Why is this good? During the height of the last boom, I saw quite a bit of crazy escalation of prices in the market (ok, we ALL saw it). As a result, it was difficult for appraisers to always find com parables to support the higher prices borrowers were willing to pay. Therefore there was quite a bit of pressure for people in the system, borrowers, realtors, mortgage officers to let the appraiser know they needed to reach a certain dollar value. In some cases, it went even further, with either implied or outright pressure being put on the appraiser. This of course helped to put everyone on the treadmill and “chase balloons” with regard to ever raising prices.

I’ve told my sellers in the past to set prices that were within reasonable value so that they would appraise and buyers to be prepared to restructure the price on, or walk away from a deal that didn’t appraise. I tend to be somewhat conservative with my advice because I want the client to be happy years down the line looking back at their purchase or sale and not look over their shoulder. Really, to me, it’s just the right way to do business.

So with regard to the HVVC, I welcome it. So should you. It’s a good thing.

In California, appraisers are regulated by the California Office of Real Estate Appraisers. Their website is here [LINK]

For more information, see this PDF [LINK] from the California Office of Real Estate Appraisers.