Hello everyone, just wanted you to know that the HVCC (home valuation code of conduct) is soon going to be a reality come May 1st, 2009 and you need to take control now. you need to take control now in your SALES CONTRACTS.
If you have never heard of HVCC...You are in for a RUDE awakening! PLEASE READ ON....
I hope the powers that be here on Active Rain make this a featured post because this information is critical to your sales DEALS not falling apart every time due to the appraisals.
In a nutshell, when this new FEDERAL law takes effect in May, Mortgage Brokers, Realtors Buyers and Sellers will have NO control over the appraisal process. Brokers can no longer order appraisals directly from appraisers, Realtors, Buyers and Sellers can no longer order an appraisal and then bring it to their lender or bank for a loan.
Banks are the only ones who can order the report directly from the appraiser or a third party will do the ordering hired by the Banks. These third parties are what we call Appraisal Management Companies (AMC's). The banks are hiring these companies to puts a layer in between the banks and the appraiser for more independence and less lender pressure on the appraisers to "make the value".
**Any of the above individuals CAN order an appraisal directly from the appraiser if their reason for the report is not for a LOAN, IE; to determine a listing or sales price, to obtain current value, a divorce, estate, tax rebuttal appraisal, PMI removal, etc. That is NOT prohibited and is actually encouraged in this ever changing market ***
Here is where REALTORS, buyer and sellers DO have control. Just the other day I was appraising a Lake Lanier property (our specialty) and I was very HAPPY to see that in the sales contract under the special stips page was the following statement:
" Buyer shall have all the rights and provisions manifested by the Appraisal Contingency provided that the appraiser the buyers lender selects has COMPETENCY to perform an accurate Lake Front Property appraisal and has completed at least 10 appraisals on Lake Sidney Lanier waterfront properties within the past 3 years" Said qualifications of any and all appraisers hired shall be provided to the Listing Agents in writing upon request."
That is awesome! I would suggest SELLERS rights are also protected in the contract, by stating that if the buyer signs an appraisal contingency in the contract, they should also REQUIRE an experienced appraiser in the property be it Lake, Golf Course, even a particular neighborhood. I would also suggest that in the case of a special property like Lakefront that the experience be even greater at least 10% of their work is completion of this type of appraisal over the past 1 year, not 3 years as things have changed over the last year as you well know. Many lenders are requiring that the property appraised by the appraiser is no more than 30 miles from the appraiser's office. I would suggest that you narrow that down and state that the appraiser must live in the SAME COUNTY as the property being appraised.
I can't tell you how many times a lender sends someone from ATLANTA to Lake Lanier to appraise that property and unless they have considerable experience on this lake, which most do not as their primary work is closer to the city of Atlanta (45 miles from Lake Lanier) you have a disaster waiting to happen when it comes to the appraisal!
So you DO have control and you need to start adding this type of language to every sales contract and making sure the BANKS comply because NOW it is in the binding sales contract. Trust me when I tell you that BANKS and especially the Appraisal Management Companies (see my previous post on AMC's) DO not care about competency of the appraiser. They select the one that can do it the quickest and the cheapest and if that happens your DEALS will fall apart on a regular basis.
Please pass this along to every Realtor you know, repost it, blog about it NOW. If you do then you can take control back on this HVCC law when it comes to appraisals on your sales deals.
If you have any questions about this new law, let me know it is just around the corner.
Mary Thompson
What a brilliant idea to detail your contingency! Did the lender qualify that you had the experience before hiring you or did they just get lucky?
Thanks Sara! You are right on the money! The listing Realtor advised the bank that I was the Lake Lanier Appraiser that had the most experience, but there was definitely luck in this.
The lender called us first to see if we could do the report, as soon as they gave me the address I said oh that is Lake property and she said yes, but I am thinking I educated her on this fact. So we quoted our price and turn time. We did not hear back. Gee I wonder Why? I called them back to see where the order was since they said they were going to be emailing it to me that day....Familiar story right? LOL
They told me that they found someone who could turn it around quicker, my guess is that he gave them a better quote! Anyway the next day I get the order in my email inbox, so I call them and say hey you said you gave this to someone else, whats up?
Here is the zinger, they found out this guy was in Atlanta and he was a COMMERCIAL Appraiser, he forgot to mention that little fact and I am sure he had ZERO experience with Lake Lanier property. I am also guessing that the selling and or listing realtor may have asked why they were not using me, but not sure about this fact?
So the lesson here is: REALTORS, first make sure to put this wording into the contract then make sure the banks abide by this binding contract! Find out who that appraiser is. Google them if you have to and see if they have a clue about the area in which the subject property is located.
If you do this, they will have to use an appraiser with experience in the area, otherwise the appraisal will be flawed and the new HVCC does give the bank the option to get another appraisal if the appraisal is flawed. So lets work together on this and we can take some control back!
Thanks again Sara!
Mary
Hi Mary, Great post, and an excellent idea! I just hope some realtors read it.
Sometimes a word has a different meaning to different people, take COMPETENCY. To most appraisers it means, knowledge of the area and type of property being appraised, diligent, and thorough. To most lenders, AMCs, and some appraisers(we all have them in our areas) it means, who every can get it done the cheapest ($150) and fastest.
Hey Sara, long time since we spoke, I hope life is good.
Mary, I hate the HVCC as much as you do. I hate that previous business relationships are in danger; I hate that it leaves things to appraisal management companies who hold no license; I hate that speed and price may win out over quality...
But I do not see agents writing anything into the contract that has to do with appraisers. The idea behind the HVCC is a good one--to remove manipulation of market value and lender pressure.
Moreover, if I were the buyer, I would not want the agent helping to select the appraiser. The agent and the appraiser are motivated by different forces: The agent wants the deal to close in order to help her client and to receive compensation for her hard work in this process. The appraiser simply wants to find the answer. He is paid regardless of what finding he makes.
On another note, I was just in Athens the other day--man, I miss that place! Good music, weather, and even tofu (I don't tend to eat tofu unless I'm there :D)...
Cheers,
-Rick
Rick: Amen to that!
Michael: I hear you on Competency!
I plan to repost this one so it get featured. Too Many Agents have no clue about the HVCC, everyone I am talking to here has never heard of it.
Thanks for your comments.
Mary
Mary, good post. I agree with Michael Z. Quality or competency is definitely in the eye of the beholder. Banks, mortgage companies and such think its price, turn time, etc. but we all know that when you require a fast, cheap, accurate appraisal at least one of these things is going to suffer, the question is which one?
I love it! I will be sure to bring this up to all my fellow agents in my office! Thanks for sharing!
Great post and excellent, excellent information. Nobody here knew about this but we do now and will follow your lead. We run into the same problems here with appraisers outside their area of expertise (as we call it here in AZ). So the verbage is perfect.
Thanks! Anna Banana, Phoenix,AZ
Christianne: Awesome....This is what every Realtor should do, pass this along to every agent in their office!!!!!!!!
Thanks again!
Anna:
You are very welcome! Whenever you have a chance to take control of your business, I say grab it by the horns and RUN with it!
Banks must order the report directly from the appraiser or a third party will do the ordering hired by the Banks
Mary this statement leaves me a bit confused from your post. A lender told me today that Banks will NOT be able to order report directly from the appraiser, but must do it through a third party??
Thanks for the idea for adding the special stipulation. I'm going to be calling my attorney tomorrow to draft me one to use. Great idea. I'll also share it with other agents in my area.
Wow, one of the most useful and informative post we all need to read. I will be sharing this with my team and beyond. I can't thank you enough for your contingency advice.
Thanks for the heads up, I think there will be more changes to all our livelihoods once the current administration starts hiring and firing CEO's, it should be interesting to see what banks turn into.
Hi Mary, I have been dreading May 1st. Nothing like making a bad situation much worse. Thanks for the advice on some measures for dealing with this. One question - will agents still be able to give the appraiser comps?
Liz
Thanks for posting this up Mary and bringing it to our attention. That is a great clause to put into the contract.
Excellent info Mary - I'm going to reblog this and also show it to a few REBAC instructors I know. Thanks for the great information!
Hi Mary...As a REALTOR that lists and sells waterfront and water access properties I am especially grateful for this information.
This post is a keeper for me and will be very useful for any upcoming contracts that I write or receive.
Will definitely re-blog.
Thanks very much.
Kate
Mary-Good to know! The whole appraisal process is important for us to remain informed!
Oh so loving it! Watch the lender's eyeballs roll back in their head, like they should.
This is interesting. I'll have to talk with our attorney and see if they can draft a good contingency...
Mary
I don't pretend to be an expert..at least lately since things seem to be changing daily and sometimes by the hour.
As a member of the California Association of Mortgage Brokers, I got this link to the NAMB website about litigation against this new appraisal process. See Below:
https://www.namb.org/images/namb/GovernmentAffairs/Member%20Email%20_Mar%2020%202009_%20Final.pdf
From what I understand this is preventing the program from taking affect May 1. In fact, many of my lenders have told me to order as usual until advised.
From speaking with appraisers that I know, most if not all have told me they will have no desire to fight for value since they will be paid almost half or less than their usual fees. They intend on being very conservative as they don't want to have to go back and fight for higher values as their time is more valuable. Most will have to at least double their work load just to keep up with earnings from the past.
This is a real issue for our industry as the big banks typically own or have an ownership interest in these management companies. It is just another way to squeeze out more profits while giving the illusion that appraisals will be handled more efficiently.
For the record, I have never nor have I ever tried to do anything to effect value. I figure the appraiser is the expert in that area. Sure I want to make loans, but the appraisal also has to pass lender scrutiny.
Just my 2 cents.
Best Regards,
Wayne Brown
www.sdmortgagefinder.com
Great post, thanks.
Hi Mary -- Great info here, thank you. I'm not sure this clause would actually affect the outcome if a lender says no however. Most purchase agreements in our local area will be null and void if the appraisal doesn't come through okay, and I can't imagine a buyer trying to fight a lender over an appraisal, but who knows.
What a great idea. I've been very concerned about this change and how it's going to effect actually getting the appraisal done by an appraiser who knows the area.
Mary,
Here is the link to The Appraisal Foundation for the "Competency Rule" in USPAP, some of the readers/users, etc.. may find it interesting....
http://www.appraisalfoundation.org/s_appraisal/sec.asp?CID=3&DID=3
As they say knowledge is power?
For those Appraisers that really do a crappy job, I mean out and out fraud or gross incompetency, you should turn them into their state licensing body, just as Realtors that try to coerce an Appraiser or ask them to ignore repairs, etc.. should be turned into their respective licensing body. That's the way we can really get rid of those that do not belong. Everyone makes errors, is true, that is why I advocate only the very obvious of cases be turned in. In USPAP, relative to competency, there is a statement - "Competency does not require perfection." Thus, minor errors are not grounds for discipline, as we all make errors, no such thing as perfection. The last perfect person, was my savior Jesus and they nailed him to the cross for it, so just as in a biblical sense perfection is not required for entry into heaven, neither is it required in business. You can look at http://www.asc.gov - this site has links and info on every Appraisal licensing agency in the country, as well as some general information on every Appraiser that is certified or licensed that meets either the current or previous requirements of the Appraisal Foundation.
Regards,
Don
Mary: Great information. I knew this change was coming. Heard about it last week from a local appraise. I had never seen this type clause put into contracts.. I love it..
Great ideas!!! The county idea doesn't work in many places, ie, high population areas may cover several counties and/or municipalities. But the experience clause is great. Thanks for sharing.
Mary, how can I thank you enough for this information?? You have given us valuable info for avoiding the heartaches we have experienced recently with appraisals! I believe we need to make appraisers accountable for their expertise!!
LOVE IT! I own a brokerage in Athens, GA and am terrified at the thought of an AMC sending what they deem to be "qualified" to appraise some of the RURAL property in our area. NIGHTMARE! I am sending this to EVERY AGENT I KNOW... Let's pray the do this. I can't wait to see the lenders response. HEHE!
Wayne: per our congressman here in GA. The suit the Brokers Association filed will not fly, it may delay the start date, but they are not optimistic about this one working. I agree with DON, appraisers do not fight for value, they are supposed to determine the true MARKET value that the market dictates. They are there to protect the lenders so they do not make risky loans, You should run fast and far from those appraisers who are telling you this as they are not doing the job they are hired to do and they are definitely not protecting the banks.
DON:Do NOT agree that this stip will result in rejected loans. The lenders may deny the loan based upon the appraisal, but this is less likely with an experienced appraiser in the property they are appraising.
DO NOT appreciate you using my blog to advertise your business in the Midwest. Please CEASE and DESIST. I hope my fellow AR bloggers agree!
Chris:Please use this stip, sure the banks may deny due to appraisal, but less chance they will do this if they have a competent appraiser. So keep fighting okay?
Everyone Else; Thank you for your comments and keep fighting the good fight!
Thank you for the post. This is nothing but the banking industry trying to take control of the real estate industry. The banks own way to much real estate now and would surely like to devalue real estate across the board. Thanks again for the post, I passed it on.
While I am all for competency, I just wonder if this type of verbiage would have the power to supersede the HVCC ???? It may protect earnest money, though. I would definitely consult legal counsel on this issue.
Mary, thank you for the post and the great information. I knew change was in the air but no one was able to tell me details.
Bettina
Mary,
I'm a Realtor here in Utah and we haven't had much trouble pulling in value on a home--but this could definately change things. THANK YOU for providing this valuable info-I appreciate your sharing it so we can all have a heads-up and can act PRO-ACTIVELY! Cheers...
Thank you for the heads up Mary! I have bookmarked this for my use when I need it, I can just refer back to here.
Mary, do you know how the law suit between HUD, the AG of New York, and the National Association of Mortgage Brokers is going? I believe there was an injunction but don't know how long it will last.
I honestly had NO idea about this taking effect on May 1st. A year or so ago, I heard that there might be a new process to select appraisers in an effort to reduce fraud, but this news is BIG! I'm so thankful that you gave us an example of what to use in the special stips. I'm definitely going to bookmark and re-blog this one.
Great info about HVCC. While I'm not a big fan of the new rule, I don't think there should be too much impact for Realtors. Afterall, if a Buyer's Agent is truly representing their client, exercising due dilligence when evaluating a property's value, it should be unlikely that an appraisal would come in substantially different from the broker's CMA. If it does, the Broker would still be in a position to appeal the appraisal through the vendor's review desk.
I like the stip, but does it really have any teeth. The lender nor the appraiser are party to the contract and since the buyer cannot pick the appraiser how would this stip be enforced?
For those wondering if STIP will work: Part of the HVCC states a second appraisal can be requested if there is reason to believe the first appraisal report is flawed. If the appraiser has no clue about the area or does not have expertise in a special property, etc. the report is likely going to be flawed. So you DO have recourse against the BANKS. You are NOT trying to pressure or get a value that does not exist, you are only requiring that the appraiser be competent to complete the task for which they are hired.
Per USPAP appraisers are not supposed to take on an appraisal assignment if they do not have the competence or experience to complete the appraisal unless they hire someont to assist in the development of the report.
Everyone has the right to a competent, accurate (not inflated mind you) appraisal.
Thanks for your input!
Mary, As a listing agent I have a packet for the appraiser, the same information that I used to determine list price of the house initially. When the house goes under contract, I do an update of actives, pendings solds etc. I have this info ready for the appraiser along with the subject property's info. This is NOT to do the appraiser's job but to share information on the home and area that I may know better. We all need to work together.
Hi Mary- I just wanted to come back and add another tid bit of info that I have discussed with my attorney and have a lender running by the legal department of her mortgage company...
It might also be added that the buyer shall not pay more than X dollars for the third party and X for the appraisal so that appraisers can get a fair share of the money. I read that AlaMode's XSite & AppraisalPort.com only charge $15. roughly per order they process. But consumers need to be protected and I don't see HVCC as protecting the consumer at all.
Tammy:
That would be an interesting add on. The Appraisal Management Companies do charge the banks more than what the appraiser charges banks for appraisals and it is not a small difference. Sure they have to make money but the variance can be a couple hundred dollars per report. Now that adds up!
Consumers need to be protected by reviewing the appraisals and making sure that they accurately represent their property. They must get a copy before closing, lenders are required to give them a copy of the appraisal repport.
Consumers and Realtors need to know if the appraiser is competent in their location or type of property, etc. Require a 2nd appraisal if they feel the first one is flawed or inaccurate. Documentation of facts is key in refuting the appraised value of your property.
But I must say, the consumer IS protected when the appraisers are able to accurately assess value without undue pressure from outside sources. This is what got us into trouble to begin with. Appraisers need to determine value and they can do this quite adequately as long as they are experienced in the area they are appraising. I do not agree with the philosophy that any good appraiser can appraise any property after compiling all the data and analyzing it.
You need to have some idea what the area is doing, other than just the sales and listings, you need to know what is going on locally and how this is impacting the property values. We need to know WHY values are affected, not just THAT they are affected and only someone with that kind of personal, local experience can understand the dynamics at play in their respective areas.
Thanks everyone.