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On May 1st, a new agreement went into effect, called the Home Valuation Code of Conduct, or HVCC, making changes to the way appraisals are obtained. Fannie Mae and Freddie Mac will not be able to provide funding for loans that do not meet the new guidelines.

The agreement prohibits mortgage brokers or loan officers from ordering an appriasal directly from, or having any direct contact with, a real estate appraiser. This includes approaching them to provide the appaiser with relevant information. Brokers and loan officers will be required to request appraisals from “appraisal management” companies that act as appraisal brokers for obtaining appraisals.

The purpose of this agreement is supposed to be the prevention of the appraiser providing a requested value to match the loan. By not being able to influence the appraiser, the appraiser theoretically will come up with an objective value.

The problem with this thinking is that all of you have probably experienced appraisers who are all over the board with values. We all know that the fair market value of any property is a range, rather than a specific dollar amount. Appraisers are accustomed to tailoring the part of the range the value should be to the purpose. In both real estate and in law, I have seen majority of appraisers with whom I’ve had contact do it this way. Even in divorce court cases it is often required to have 3 appraisals and average the 3 values.

It will be important for agents to be the point of contact person to arrange for access for the appraisal, to help the appraiser to understand that it is not helpful to value the property in the low part of the range. In short sales, they need to understand that it is not helpful to value the property in the high part of the range.

It would be much easier if there was a clear cut and universal method by which to come up with an objective, one number value that would be consistent between all professionals who value property. However, that is not our reality. In short sales, I have had to appeal several valuations that were off as much as $20,000, which would have caused the short sale to not attain the minimum threshold and be rejected. Although I have been successful with every appeal so far, the new law will make it more difficult to appeal these values. This difficulty in appealing values will likely affect short sales as well.

So far, it seems that with almost every legislative and government-ordered change has come more problems They seem to be really good at screwing up what needs to be fixed and trying to correct what does not need to be changed. When will it ever end?

Edit: 6/12/09

It is important to emphasize that most appraisers are consummate professionals and of the highest caliber. Just like the bad lawyers and agents hurt damage the reputation of the rest of us, it will be a minority that will create the problems. The criticism of the agreement and new procedures is justified because we all know there are bad lawyers, agents, and appraisers.

That’s my opinion, what is yours?

Ken Lawson JD