Home appraisals still fraught with uncertainty despite new code of conduct

Little known outside the housing industry — and little understood inside the business — the Home Valuation Code of Conduct (HVCC) was supposed to result in better, more honest appraisals. But a year after it was put in place there is still a question of whether home buyers are getting their money's worth.

Real estate professionals, home builders, mortgage brokers and even some appraisers themselves complain that lenders are using appraisers who lack experience, sometimes travel great distances to divine values in unfamiliar jurisdictions or base their determinations on sales that are not similar to the property they are appraising.

Negotiated by New York Atty. Gen. Andrew Cuomo with Fannie Mae and Freddie Mac, the two government-sponsored secondary-mortgage-market institutions that help keep the money flowing to primary lenders, the code effectively blocks anyone who has a financial stake in a transaction from pressuring the appraiser to "hit the number" necessary for the lender to approve the loan.

That's a laudable goal that everyone agrees was long overdue. But the antagonists say their issues aren't with the HVCC itself but how the lending community has implemented it.

Instead of erecting their own firewalls between real estate agents and loan brokers on one side and appraisers and underwriters on the other, most lenders have turned the appraisal-ordering task over to third-party appraisal management companies. And, not surprisingly, the AMCs say the complaints are way overblown.

The Title Appraisal Vendor Management Assn., the trade group for AMCs, says that on average its member appraisers travel only short distances and have 15 years of experience. And the AMCs maintain that they use only licensed and certified appraisers who, under industry standards, must refuse assignments in unfamiliar markets.

On first blush, buyers and sellers may not think they have a role in this fight. But they do. Buyers need to know they are not overpaying for a property, and sellers, at least in the current down market, sometimes have to come to grips with the possibility that the old homestead isn't worth as much as they think it is. So if an appraisal isn't accurate, both sides suffer.

To some extent, agents, brokers and builders have to get real, too. AMCs aren't going away. The HVCC is now firmly embedded in the mortgage-approval system, and the market is what it is.

At the same time, though, their complaints have some validity, which raises the question of what to do if you have some reason to doubt the value an appraiser ascribes to your house.

For starters, if you or your agent believes the appraiser has violated the standards of his or her profession or is downright incompetent, by all means, report him — to his company, to your state licensing agency and even to the police or FBI if you think he may be involved in some type of fraud. Each has a procedure for filing complaints.

If you think the valuation has come in way too low, you need to appeal, but with as much finesse as possible. Realize that if the lender orders the appraiser to take a second look, it's like telling him he was wrong the first time.

Of course, you can always ask for a second opinion from another appraiser. But you'll have to pay for that one, too. Moreover, to stand any chance of winning your point, the second valuation must be more than 5% higher than the first. Anything less is considered an acceptable difference.

Besides, even if the second appraisal is far above the first, it's the lender, not you, who gets to pick the appraisal on which the loan is based.

Although it may seem as though the cards are stacked against the customer, you can even the playing field by suggesting the appraiser assigned by the lender erred and requesting that he be asked to take a second look. And you can do some of the homework on your own searching out "comparables" that the appraiser may have missed the first time around. Cast the net widely by finding newly built homes and those marketed by agents who are not Multiple Listing Service members.

Remember, though, that you are not just looking for sales in the same general neighborhood. You want at least two, but preferably three, of the same style (ranch to ranch, for example, not ranch to two-story colonial), size and features. Also, sales should be no more than 6 months old and the more recent the better.

Look at the comps cited by the appraiser. Although the appraiser is required to go inside the property, he does not have to do that with the comps upon which he bases his valuation. More often than not his knowledge of them is based entirely on their description in the MLS or the public land records.

If a comp or two was sold at foreclosure, you have to make sure that the previous owners didn't gut them. Properties that have been mistreated not only sell for less, but they are also hardly similar to well maintained houses. However, the appraiser won't know that unless he gets inside.

The trick here is to find as many differences as possible in your favor, differences the appraiser may not have known about or failed to consider.

lsichelman@aol.com

Distributed by United Feature Syndicate.

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