I spent a good part of my Facebook week relating the misfortune of three of my Buyer clients who made offers on homes, only to have them not appraise for what they offered for them. These failures are thanks in no small part to HVCC, or the "Home Valuation Code of Conduct."
This little agreement (May 1, 2009) is a misguided attempt to regulate inappropriate relationships between Lenders and Appraisers. Like many regulations we've seen originate from the Government as a result of our economic slowdown, apparently nobody had the brains to think through the unintended consequences to REALTORS, Lenders, Buyers, Sellers and the general American economy.
Perhaps it is quite politically incorrect for me to blog this here, however, I believe that it is important that people understand what is happening and how their home's (already deflated) value is in deep jeopardy. In fact, all of America's home values are in trouble if we keep these guidelines.
Case in point: I have a Buyer who offered to purchase a home for $182,000. This is substantiated by comps that I found from our MLS and my knowledge of the area. The offer was accepted by the Seller. The Buyer then purchased an inspection for $350 and an appraisal for $450. The inspection came out clean. The Appraiser, a person from 14 cites away (2 hours to the south of the subject property) was assigned to do the appraisal. Not surprisingly, he couldn't "find the value" and appraised the property at $179,500, just $2,500 less than the offer price.
You might be wondering WHY this person who clearly is not familiar with the area has been assigned to appraise the property. You see, this is the BRAIN CHILD of HVCC wherein no Lender can choose from their pool of appropriate, area-knowledgeable Appraisers. Now, they must put in a request into a anonymous pool of Appraisers who can be from anywhere, with any skill level (notably NONE) and any experience level.
Herein lies the genius of HVCC. Now, there will be no collusion because the Lender couldn't pick the Appraiser! There will also be no COMPETENCE, SKILL, or AREA KNOWLEDGE of any sort. Brilliant!
Let's examine how this hurts everybody. First of all, let me just say that having been in real estate 7 years, I have never personally witnessed or even heard about Lender-Appraiser collusion. Yes, no doubt it exists somewhere, but I bet in very few places. In my opinion, "collusion issues" was an easy way for the government to point a finger at something and make everybody think that they had fixed the problem by making a ridiculous guideline. Um, no.
In the case above, although the house is worth well above the offer price (as proven by two experienced real estate professionals who know the area) the Seller cannot get their rightful value now. They are forced to take less than the market says their house is worth. To put this in perspective, I had this same scenario happen twice elsewhere within a week. So for me, 100% of the houses I am involved with are being forced to artificially de-valuate in order to sell.
Most people have to sell due to a job change or many other reasons so they must take the lesser value for their home. Hence we have the devaluing of America. I hear from my REALTOR friends across the country that this is happening everywhere. Some are even thinking of leaving the business, it's too difficult to transact even a basic sale anymore. If every home, or even just 70% of the homes in America are forced to take less than market value .... does it take a rocket scientist to figure out ALL of our values will go down?
You can dispute a value that an Appraiser has submitted. But now that Appraisers have an assured income stream that is not based upon customer service and competence, many are arrogant and combative. Most will blow off any of the comps a REALTOR submits. Why not? The Appraiser already got their money!
In the case above, my Buyer asked the Seller to reduce their price so she could still purchase the home. Angry, they said no. Now my Buyer is out $800 in inspections and Appraisers fees. She has no place to go since she long ago gave notice to her apartment building and someone else is moving in at the end of the month. Nice job HVCC!
Guess what else? That was all of her money! She's done now. Back to renting, her dream literally ripped away before she even knew what hit her. (By the way, this young bride's husband is serving in the military, in another country - nice job again HVCC).
Every single person loses. The Buyer loses money, faith, a home, the Seller loses value and faith. REALTORS lose commissions on many hours of wasted time spent going nowhere. Even Appraisers lose, because the competent, busy ones are now waiting in the pool, their income way down and spread out amongst ... and here's the rub ... unethical appraisers who are now working MORE THAN EVER due to the pool! It is absolutely ridiculous!
I said that I had two others just like this. How many more are out there, across our country? WHEN, WHEN, WHEN will we finally wake up and put some competent, intelligent people into public office? How much more value will you need to lose before you get it America?
Thanks for the opportunity to vent. Next time I'll talk about how to avoid the above situation when you get ready to buy or sell your own home.
* There are two sides to every story. Everybody agrees that HVCC is ridiculous. I'll invite an appraiser to talk about what HVCC is like from their perspective in an upcoming blog post. *
Jennifer Bunker CRS GRI
Coldwater Creek Properties