You want to get a mortgage loan – either to refinance, or to sell your home – but what is it really worth in today’s market?
Many consumers begin with using an on-line appraisal from sites such as Zillow.com, Trulia.com, or even a lender’s website. But how accurate are those appraisals? Often the answer is “not very.” In fact, some are as much as 25% “off.”
Two major problems can render these appraisals useless. The first is timeliness. Most sites uses comparables from the past 6 months. While once that was a reasonable length of time, today it is not. Values can change in as little as two weeks.
Next is the human element. A website cannot see the condition of your home, nor of the homes used for comparison. It also cannot view the neighborhood and determine if it is in a stable, improving, or declining area. Thus, the only true appraisal must come from a certified appraiser who knows the local market and is skilled in factoring in all the variables. And there comes the next hurdle.
Under the new HVCC rules, your home could be appraised by someone completely unfamiliar with your neighborhood and your local market.
Because finger-pointers needed someone to blame for the housing crisis, appraisers came under the gun. Some believed that appraisers who were too well acquainted with real estate agents and/or mortgage lenders were bringing in over-valued appraisals in order to make transactions close. So a new rule was born.
Under HVCC, the Home Valuation Code of Conduct, real estate agents and mortgage brokers are no longer allowed to choose appraisers known to be familiar with the neighborhoods in question. In fact, they are not allowed to have any contact with the appraiser, for fear that they might influence his or her valuation.
Now, when a mortgage lender orders an appraisal, the request goes to a third-party Appraisal Management Company. That company then orders an appraisal from the next name on the list – without regard to the appraiser’s knowledge of the community in question. Often, the assigned appraiser lives as much as 100 miles from the subject property and has never seen any of the properties that might be used as comparables.
In addition, since the Appraisal Management Company takes as much as 33% of the fee paid by the consumer, those appraisers are paid less and are in a hurry to get the job done.
The HVCC is not a benefit to anyone except the Appraisal Management Companies. Thankfully, legislation has been introduced into the House of Representatives that would force an 18 month moratorium on HVCC. It will be in the best interests of homeowners, home buyers, home sellers, and appraisers if that legislation passes.
Author: Mike Clover
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