The HVCC and the Appraisal Mess

My latest article for Inman News spoke to the new rules for appraising properties ushered in through what is known as the Home Valuation Code of Conduct, or HVCC. The comments on that post and the firestorm of emails I received as a result all shared the same sentiment – bad idea.

Since Inman is a subscriber news service, I can’t link. But at great personal risk (I am not, technically, supposed to republish since the content there is supposed to be “original”), I am going to reprint the article for our two readers here. It’s a bit long, but hey, it’s the weekend. What else have you got to do?

(Note to Inman and to the presiding judge: It is still original content. I left out two or three sentences.)

If you read nothing else, please skip to the bottom where I have reprinted with permission an email I received from John Carlson, a Certified General Real Estate Appraiser from Diamond Bar, in which he shares his concerns about the state of appraisals under the new rules. His thoughts pretty much sum up the concerns of the entire appraisal community and whether you are an agent or a principle in the transaction, it’s important that you know what’s going on.

The Home Valuation Code of Conduct, according to Freddie Mac, is all about “enhancing the independence and integrity of the appraisal process.” Good ideas, those. Go, Freddie!

If you were a licensed real estate agent in 2005 (which, according to the most recent census, includes everyone over the age of eighteen except some guy from Des Moines named Carl), you undoubtedly understand the need for a code of conduct. Back in the glory days when homes, or as we liked to call them, debit cards, were in high demand, the typical conversation between the listing agent and appraiser went something like this.

Appraiser: “I have been asked to appraise the property at 347 Falling Downs. May I meet you there at 3:00 today?

Agent: “Great, yes!”

Appraiser: “What is the sale price?”

Agent: “The price is $5,257,000, which is a little higher than the price of the last one-bedroom condo that sold in the neighborhood, but it’s really nice, and we had multiple offers!”

Appraiser: “Good one! Were there any concessions?”

Agent: “Well, the buyer did offer to raise the seller’s children as his own.

Appraiser: “Alrighty, then. We should be fine.  Just bring a copy of the contract.”

So, something clearly had to be done. And this is where the Code of Conduct comes in. Who says you can’t legislate ethics? The lenders were bad, bad children. The argument is that in their youthful exuberance to give all of their money away, they established relationships with appraisers who would consistently return the magic number, all too aware of on which side their paycheck was buttered. Maybe some lenders did influence the valuation process to their own benefit and to the consumer’s detriment. Or maybe, and I’ll just throw this out there, a home’s value is in fact loosely related to what a buyer is willing to pay, and when the lenders were giving out free money, buyers were willing to pay a lot –  a lot of the lender’s money. Either way, the regulating parents have stepped in.

So, we are now living under a new lotto system for assigning appraisers. And, now, our first point of contact with the appraiser goes something like this.

Appraiser dispatcher: “We have been asked to appraise the property at 11283 Peep Holes Court.”

Agent: “You mean ‘Peoples Court’?”

Appraiser dispatcher: “Whatever. When can we get in to see it?

Agent: “When would you like to get in to see it?”

Appraiser dispatcher: “Please hold.”

On the last such call, I held at this point for exactly 13 minutes (I counted). And while I enjoyed the musical stylings of Paul Anka, I sat mildly amused with the irony that it was she who had called me.  A better woman would have hung up, but I knew she had me over a barrel. I needed that appraisal, and I was at the mercy of this person who did not really work for the buyer or his lender, much less for me or my selling client. I guess that is what true independence is all about.

Appraiser dispatcher (returning from lunch): “Where is the property located again?

Agent: “San Diego.”

Appraiser dispatcher: “That’s in California, right? Please hold.”

Paul Anka: “Havin’ my baby…”

Appraiser dispatcher:  “Our next opening is at noon on Tuesday, in the Year of the Dragon. Oh, and bring a copy of the contract.

While we used to encounter the same stable of appraisers on each outing, we now only occasionally run into one that didn’t have to stop at the Jiffy-Mart to ask directions. And when we do see the rare, familiar face, we get an earful.

Appraisers who have spent years building their reputations and their relationships are now seeing their businesses regulated into the trash can. The costs to the consumers are going up, but the income to the established appraisers is going south because of a combination of fewer assignments and lower fees. The latter is because somebody has to pay for the administration and oversight which now is typically dispensed by an appraisal management company.

And, just in case anyone even thinks about getting ornery and gaming the new system, Fannie and Freddie will be funding an Independent Valuation Protection Institute to “maintain the integrity” of the very Code of Conduct intended to maintain the integrity of the appraisal process. Perhaps we should have a system in place for maintaining the Institute’s integrity. After all, you can’t be too careful.

So, back to my IRL (in real life) grab bag. First there was the home which sold at full-price first day on the market. Our lucky quick-pick ticket gave us an appraiser who refused to actually go inside the property. It was what they call a drive-by appraisal, and I am being generous here because there was no evidence that anyone bearing even a slight resemblance to a valuation professional had been within twelve counties of this home. With no model-match sales within the last two years (what we, in the industry, might call “latent demand”), the appraiser relied on sales of homes whose only similarities were in the fact that they too had mailboxes. Our requests to provide relevant data, appeal the appraisal, and even to simply speak to the mystery appraiser were denied. It cost the seller $5,000.

More fun yet was the appraisal process for our most recent listing. This one involved an FHA appraisal and, admittedly, the level of difficulty here is slightly higher. The appraiser is also an inspector of sorts. The assigned out-of-area appraiser did his routine appraiser-guy thing. He measured and took pictures and asked for a copy of the contract. And he identified a couple of outlets which, although not a grandfathered code requirement, he said would need to be GFCI protected. The FHA likes GFCIs – a lot.

Two days later, while foolishly thinking that because the property had been appraised, we had fulfilled the requirement that the property be appraised, we took a call from a second inspector. This is routine with FHA, doing things twice. In fact, many conventional loans now involve private screenings of “Appraisal: The Redux.”  Better to be cautious. The first guy might have not have acted “independently” as the Code requires, having suffered from impaired vision due to a seller headlock or too much time spent squinting at the shiny red buttons on electrical outlets. Or maybe he didn’t act with “integrity” and lied about stuff in his report (like GFCIs).

Our second appraiser came and conquered, and as inconceivable as this might sound, he too found that we needed some outlet upgrades (the same ones). And, crazy as it may seem, his estimate of value, like the first-string appraiser-guy, was exactly what the buyer had offered to pay. Buyers are so smart!

So, off to underwriting we go, but not so fast. All of you veteran agents know that the FHA appraiser would have to first come back to make sure that those outlets of death were properly addressed, which he did. So, now, off to underwriting we go – but not so fast. What if the first appraiser did not act independently, but instead believed us when we told him that the toaster oven was really a new GFCI? What if he lacked integrity, and he didn’t really push the reset button to confirm that the new outlet was browning evenly? The second appraiser, we were told, would have to return to look at the same outlets.

Twenty-seven days into a thirty day escrow, and we are still playing tag-team appraisal. I have spent so much time looking at the wall sockets in this home that if it burned down tomorrow, I could draw up detailed electrical plans with a box of Crayons and confidence. But I don’t blame the appraisers. In trying to win the right war, a bunch of well-meaning people just picked the wrong battle. We may find a lot of unintended casualties as a result.

Imagine you are an agent with a decade or more of experience. You have gained knowledge, you have established credibility and a loyal client base from which your future business will be sustained, and then suddenly someone tells you that the system is not fair. Instead, your client database is commandeered and each person is now assigned the next licensed agent in the rotation, neighborhood specialist be damned. And then, like a relocation company, they will essentially charge you for the privilege — when your number comes up. It might be enough to inspire Carl from Des Moines to finally get that license, but for the established agent, it could hurt the bottom line.

Imagine that, and you can imagine what a lot of appraisers are feeling right now. One could argue that the appraisal management companies are the winners and the rest of us, well, that’s another story.

I was speaking with a loan officer at Wells Fargo this week when he confessed, “This was supposed to improve the quality of appraisals. What it has really done is tank the quality of the product and the levels of service. It’s a mess.”

Maybe the Valuation Protection Institute can take that up at their first meeting.

Now, from John Carlson in response:

Ms. Berg,

I read part of your article on Inman News entitled: “Appraising the new Appraisal Problem”.  Welcome to the wonderful world of the HVCC!! Courtesy of Mr. Andrew Cuomo, venerated Attorney General of N.Y.

I am a Commercial Appraiser in Diamond Bar, CA ( and am a moderator of one Appraiser’s Forum and a member of two more. My practice deals with both residential and commercial/industrial properties. If you would like I’ll forward the posts of my fellow appraisers about their experiences with the Appraisal Management Companies. (AMCs) It is a horror story. Get used to it – it’s going to get worse.

First, if you don’t know by now, AMCs are interested in two things and two things only:

1. Which appraiser can do the appraisal the fastest AND

2. Which appraiser can do the appraisal the cheapest

That’s it! Competency and experience don’t even enter into the equation. My Forum members have posted that when they are called by an AMC, the only thing they are asked are the above two things: How Fast & How Cheap. Forum members have also posted about conversations with “former” mortgage broker clients where their former clients talk about AMC appraisers traveling 100+ miles from their office to where the property to be appraised is. Think about this! Can an appraiser from 100 miles away be geographically competent to appraise a property in a neighborhood they never even knew existed before?

Did you also know that Reviews from the AMCs are coming in VERY low. Reviewers are basically “bottom feeding” Comps & correlating values toward the median value. What this means for your profession is that if you are selling a home with a large addition, or perhaps significant upgrades, there will be no consideration made for extra square footage or the upgrades. In addition, if the property you have listed is “unique” in some manner, forget any consideration for the unique qualities of the home.

Most AMCs are located far away from CA. For instance, Countrywide’s AMC, Landsafe is located in Texas. These companies are offering to “insure” their review values that they come in at – the hitch: The lender has to agree with the Reviewer’s value. You want to challenge the appraisal?? Fine, pay for another appraisal. Appraisers on our Forum are saying lenders are not challenging, but either killing a deal, or accepting the lower value.

My fellow appraisers who work with AMCs have no incentive to prepare a competent appraisal, as a matter of fact, there is a significant disincentive. Most AMCs require delivery of the completed report within 24 hours of when the appraiser sees the property. If appraisers do not meet the delivery time – they don’t get any more business! Do you really think that any AMC appraiser will pay attention to details?? I think not.

In addition, appraisers are only getting paid from $125 to $200, maybe $250 for a report. Your Clients, on their RESPA document, will see a charge of between $450 & $600. The difference between what the appraiser is paid and the total fee on the RESPA document is being pocketed by the AMC. Think about this, an appraiser now has to do twice the work to make the same money they made a year ago. You really think there is going to be attention to detail?? Residential appraisers are now a “commodity”, basically form-fillers banging out reports as fast as possible. By the way: Is this fee structure a RESPA violation, borrowers are not being informed about the fee differential – we think so – but we’re not legal experts, right?

I think it is absolutely critical for you Agents to meet whatever appraiser there is and be prepared to give the appraiser Comps. Remember, the appraiser may be coming from miles and miles away and probably won’t have access to your local MLS. Don’t try to mislead the appraiser; that could backfire on you. Present all Comps available and talk about the low ones and the high ones also. Tell the appraiser why those properties sold low & why properties sold high & provide documentation. Remember, you’re probably dealing with less experienced appraisers willing to work for “McDonalds” wages.

Finally, I think that Agents should inundate Mr. Coumo’s office with e-mails letting them know what a huge mistake this was. For some reason, Mr. Coumo thinks that AMCs have less incentive to control the appraisal process than the big, bad mortgage brokers did. Nothing could be farther from the truth. The actions of AMCs are totally unregulated and pressure on the appraiser is even more intense than ever before.

Thanks to Mr. Carlson for allowing us to repost his remarks. If you are a buyer or seller and you have been wondering why your appraisal took so long, why it cost so much, or why it was off be a factor of ten, now you know.

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