10 Things You Should Know About the New Appraisal Rules

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Heard of HVCC? It's not a heating and ventilation system for the home (that's HVAC), nor is it an infectious disease. HVCC is the Home Valuation Code of Conduct, a controversial set of guidelines established by Fannie Mae and Freddie Mac in May 2009. By setting up a sort of firewall between lenders and appraisers, in the form of middlemen known as appraisal management companies, they hope to prevent inflated appraisals -- and perhaps another housing bubble.

Mortgage brokers, appraisers and Realtors have been up in arms over the HVCC, but not much has been said about what it means for the average house-hunting consumer or seller. So, in that spirit, here are 10 things you should know before you appraise a home.1. The code only applies to loans backed by Fannie Mae and Freddie Mac. The HVCC does not apply to loans that are insured or guaranteed by another federal agency, such as FHA and VA loans. (The FHA, however, announced its own set of guidelines in September, adopting some of the same language as the HVCC).

2. A lender can use an in-house appraiser.
So long as the appraiser doesn't communicate with a commission-based loan officer, a lender can still use an in-house appraiser for the initial valuation or as a review as part of a quality control process. (Note: if the lender's appraiser comes up with a lower number than the first guy, the home's sale might just be in jeopardy.)

3. Mortgage brokers can request an appraiser. Brokers cannot pick up the phone and order an appraiser directly for the potential buyer, but brokers can put in an order for one through a computer system linked to the lender or an appraisal management company. The lender or the AMC, an entity in many cases partially owned by a bank, will then select a state-licensed appraiser who is willing to pay the AMC a fee to have its name in the running.

4. Your broker can reject an appraiser.
Although the broker cannot select a specific appraiser, she could reject the one that was assigned by an AMC until a "trusted" one is found. Some appraisers are blacklisted by some lenders. It's the job of the mortgage broker to double-check to make sure the appraiser assigned by the AMC is acceptable to the target lender. This is detrimental. Because if an appraiser is on a blacklist, the lender will reject the appraisal report on that basis alone. This elimination feature, however, could be used to shed an appraiser who might charge, say, $500 instead of $350 for a report, or one who works too far out of area. But be careful since you do not know who you might get next.

5. Expect higher fees.
If appraisers want to be assigned business by an appraisal management company, they have to pay the AMC to be part of the club. As a result, some appraisers might raise their rates to cover their additional expenses. In some other cases the AMCs set the rates, which might fall on the higher side of what's traditional for your area.

6. You can't pay an appraiser directly, but you can indirectly. The code requires the lender or any third-party it authorizes to select, retain and provide compensation to the appraiser. However, the lender could still require you to forward an advance payment yourself to the third-party, who will then in turn forward it to the appraiser. (Surely you didn't think the bank would shoulder this expense when it could fob it off on you?)

7. A non-local appraiser could devalue the home.
Any state licensed appraiser who signed on with the AMC could, in theory, be chosen to appraise your home. As a result, he may not be well versed in your area and might make mistakes in selecting comps, causing a gross under-valuation (or over-valuation) of your home. Just because you know that your neighborhood, for example, is creme de la creme, but one a mile over has lower valuations due to a high-number of foreclosures, or major foundation damage by the builder, that doesn't mean the appraiser will know. In one Twin Cities re-fi deal, the lender sent an appraiser who was based 72 miles away, says mortgage broker Brad Ganzer. Needless to say, the appraisal came in $30,000 under and the homeowner didn't get refinanced. In another, two different appraisals came in $200,000 apart.

8. Appraisers can talk with your real estate agent.
This is good news, because it leaves the door open for the Realtor to provide data about the subject property and area to the appraiser, who might not be local to the area (see #7).

9. You can receive a copy of the appraisal. Historically, it was tough for borrowers to rip the appraisal reports from the hands of the lenders. Now, lenders must provide the borrower with a copy prior to three days before closing, unless for some reason you waive that right.

10. The appraisal report is transferable.
If for some reason you change lenders before closing, the first lender must provide a copy of the appraisal report to the other lender if it is requested. But there is no time limit on this; in other words, there is no incentive for the first lender to rush your request. So be prepared to pay for a second appraisal in the meantime.


(Comps, right, courtesy of the author).
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