Tucson Real Estate and the Home Valuation Code of Conduct
Tucson real estate sales, although improving, now is also adversely impacted by the Home Valuation Code of Conduct (HVCC), a de facto regulation promulgated by Andrew Cuomo, Attorney General of the state of New York in conjunction with Freddie Mac and Fannie Mae. Loans which are not Fannie Mae or Freddie Mac loans are not governed by the HVCC.
The intent originally was to insure appraisals are done in accordance with independent safeguards, that appraisers were not coerced to hit a value specified by the lender or loan officer. The HVCC lays out ten areas of concern Cuomo had regarding lenders and appraisers. But rather than independent appraisers, Appraisal Management Companies (AMC) have surfaced and are a profit center for large banks which underwrite many of the Fannie Mae and Freddie Mac loans. Appraisals must be ordered and “The Code requires the lender or any third party specifically authorized by the lender to select, retain, and provide for all compensation to the appraiser”1
As a result, many independent appraisers and small appraisal companies can not longer afford to remain in business unless they join one of the AMC pools. Lenders, erring on the side of caution, may no longer use these small independent companies because they are not an AMC.
Additionally, the cost of an appraisal has escalated. There is another level of management involved with the AMC. Appraisals used to cost between $325 and $375; now they are $400 plus. Ironically, the appraiser, the person with the expertise, is now paid at least $100 less than pre-AMC. The differential goes to the AMC.
Appraisers new to the market join the pools to beef their resume and gain experience. Lenders request the appraisal from an AMC approved by the entitity subsequently underwriting the loan. Appraisals may be done by people who do not know the area,
Appraisers have guidelines and take some of their comps from within a mile of the property. Tucson properties have been appraised by out of area appraisers and these appraisals may come in unusually low. In a one mile segment, one 1/2 mile area may have custom built homes valued at $800,000 whereas the other 1/2 mile segment may have tract homes valued at $250,000. Each property may be 3,000 square feet but looking at paper, the appraiser does not know the difference. This skewing would occur with automated valuation models which are not prohibited by the code. (http://en.wikipedia.org/wiki/Automated_Valuation_Model)
As a Realtor representing my client, I often spoke with the appraiser and provided my comps with other pertinent information. If I represented a property and knew the comps showed two distressed properties, I made sure the appraiser understood. Perhaps I knew a property had been flooded or there had been a fire, this information materially impacts the value of that home…it should not materially impact the value of the home I am trying to sell. Understanding the area or the history of the area and properties is part of the knowledge base used to make good decisions.
1- Fannie Mae guidelines FM 0109 page 2 2009
Resources:
Home Valuation Code of Conduct
http://www.freddiemac.com/singlefamily/pdf/122308_valuationcodeofconduct.pdf
http://www.appraisalinstitute.org/ano/current.aspx?volume=10&numbr=11/12
https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/appcode/pdf/appraisalguidance.pdf
http://www.freddiemac.com/singlefamily/hvcc_faq.html
http://www.fhfa.gov/webfiles/277/HVCC122308.pdf
http://narblog1.realtors.org/mvtype/president/2009/06/all_is_not_quiet_on_the_midwes.html
http://narblog1.realtors.org/mvtype/appraisalinsight/cuomo_agreement/
http://appraiseractive.blogspot.com/2009/07/hvcc-update-nar-president-charles.html
Tags: Appraisals, Home Valuation Code of Conduct, Tucson Real Estate market