Home appraisals still fraught with uncertainty despite new code of conduct

Last year, the Federal Housing Finance Agency (FHFA), Fannie Mae, Freddie Mac, and the New York State General Attorney created an agreement titled the Home Valuation Code of Conduct (HVCC), which prohibits lenders, mortgage brokers, and real estate agents from selecting and having any “substantive” communication with a home appraiser. HVCC was created to protect consumers against fraudulent appraisals, which some industry experts believe was a contributing factor to inflated home values. However, many lenders have turned to the use of third-party appraisal management companies and the practice has led to complaints.

MAKING SENSE OF THE STORY FOR CONSUMERS
HVCC, which may result in appraisers evaluating homes in areas with which they are not familiar and using comparables that are inaccurate, has caused delays in closing sales, and in some cases, undermined sales if the appraisals undervalue a home’s current worth.
HVCC applies to conventional, single-family loans that are sold to Fannie Mae or Freddie Mac. It does not apply to loans backed by the Federal Housing Administration (FHA) or the Veterans Administration.
Through HVCC guidelines, borrowers are entitled to receive, free of charge, a copy of the home appraisal at least three days prior to closing, giving the borrowers more time to contest what they view as an inaccurate appraisal.
Borrowers and/or sellers who believe a home valuation is too low may appeal the valuation or request a second option. It’s important to note that the second valuation must be more than five percent higher than the first--anything less is considered an acceptable difference.
Appraisers are required to view the inside of homes being valuated, but not homes used as comparables. More often than not, the appraiser’s knowledge of the property is based solely on the description in the MLS or on the public land records. Yet, the previous owners may have removed appliances and caused other damages to the property. To guard against appraisers using non-comparable homes in the valuation, borrowers can work with their REALTOR® to review comparable homes in the neighborhood for differences the appraiser did not know about or failed to consider.

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