What the HVCC!?! The Home Valuation Code Of Conduct (Appraisals)

By rerockstar • August 7th, 2009

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The Roscommon Spaghetti Incident

With all the rules, regulations, and codes – traversing the closing process can be like unraveling spaghetti.

Two recent new additions to the closing process can affect your closing – the HVCC (Home Valuation Code Of Conduct) and MDIA (Mortgage Disclosure Improvement Act). The MDIA, I will cover in a separate post, so for now, let’s talk about the HVCC and what it means to you.

The HVCC came into effect on May 1, 2009 and has changed the way lenders and Realtors® do business with appraisers. The appraiser is the one who determines the value of your prospective new house for the lender and assures them they’re not lending you $1,000,000 for a house they feel is only worth $150,000. The appraisal process helps protect the lender and if done properly should protect you, the consumer, from over-inflated prices in the housing market.

In the pre-HVCC days, lenders and Realtors® were able to choose an appraiser, but the HVCC removes that right. The idea of this change is to prevent any collusion or price-fixing amongst the three parties and make the appraiser independent of the transaction, so that they can give a much more unbiased opinion. By picking the appraiser with no lender or Realtor® involvement the threat of the three of them colluding is removed. Lenders are also not allowed to have any substantive conversations with the appraiser about the property.

I like the idea of the independent appraiser, with no undue influence from anyone, but I have noticed a bad trend since the HVCC appeared. Gone is the idea of customer service in the appraisal industry (I’m sure there are some out there that still provide it, but I haven’t met them). When speaking with an appraiser it’s the “take it or leave it” mentality, instead of the possibility of having a rational conversation with the appraiser to explain their work and suggest something they might have missed. The appraisers all have a guaranteed rotation of work as opposed to agents and lenders being able to weed out those of them that didn’t perform their job very well.

I’ve met people in all lines of work that were bad at their job, but now the appraisers are protected by a rotating schedule of jobs where they are “next in line” instead of having to work hard to show that their competence to those that once hired them. Too see how these “guaranteed” jobs are affecting buyers as well as the appraisers themselves, read Chris Griffith’s post “The HVCC Wal-Mart Effect.” (Chris is a great, outspoken writer with both wit and a sharp tongue.)

The takeaway?

While the Home Valuation Code of Conduct will provide a certain level of consumer protection, it also opens consumers up to delays in closings and the possibility of having to walk away from their dream home if the appraiser doesn’t meet the value they have offered. Because there is no reasonable dispute process provided for within the HVCC, buyers are left to come up with the additional money to buy the home or walk away and keep looking. Agents need to be very diligent in pricing their homes, making offers, and giving buyers and sellers a realistic view of the process of appraisal.

As well, appraisal costs are on the rise as the appraisers are paying high fees to the scheduling services that dole the jobs out to the different appraisers. Because those costs have gone up, most are passing along the cost to the consumer, raising the cost of getting the necessary step out of the way.

If you have questions about the appraisal process or are thinking of buying or selling your home in San Antonio, Texas – contact me and I would be happy to sit down with you and discuss the process and your options.

photo courtesy of sjdunphy