Whether purchasing a home or refinancing, obtaining a mortgage requires getting the home appraised to determine the home’s market value.
Whether you are the buyer, owner, or seller, it is essential to understand how the appraisal process works, including who selects the home appraiser.
Home Valuation Code of Conduct and Home Loans
The Federal Reserve established the Home Valuation Code of Conduct (HVCC) in 2009 to eliminate conflict of interest, mortgage fraud, and other forms of misconduct in the mortgage industry. In addition, the HVCC seeks to ensure property appraisers perform fair valuations when conducting home appraisals.
So, can the borrower hire the appraiser? The answer is no. None of the parties involved, including the buyer, seller, lender, or real estate agent, get to determine who completes the home appraisal.
Instead, an Appraisal Management Company (AMC) contracts appraisers to perform the appraisal, independent of the lender. Appraisers will sign up with these AMCs and are not directly employed or affiliated with the AMC. Therefore, mortgage lenders cannot speak with home appraisers and must direct communication concerning the appraisal to the AMC, from ordering the appraisal to resolving any possible issues.
Before HVCC, lenders and borrowers were able to select their appraisers. However, after the housing market collapse, many appraisers expressed that they often felt pressured by lenders to inflate home valuations. As a result, the Federal Reserve implemented the HVCC to limit the communication between lenders and appraisers and mitigate some issues with increased home values during the real estate boom.
Pros and Cons of the HVCC
There have been pros and cons of this new legislation. While the appraiser still knows the desired value of the home, as they must receive a copy of the purchase contract, the pressure to come in at that value is alleviated. They no longer rely on the lender who placed the order to continue sending them business. In addition, appraisal standards are strict to ensure property appraisers conduct inspections appropriately. The AMC reviews the submitted appraisal before sending it to the lender to ensure it complies with the appraisal standards.
On the negative side, the appraisal cost has increased from an average of $250-325 to $495 and up. The appraiser’s amount to perform appraisals is around the same or even less due to the AMC taking on the appraisal costs. The consumer will compensate the AMC for these costs.
There have also been complaints that AMCs often send out appraisers not from the immediate area and may not be as familiar with the nuances of specific markets. It can also be cumbersome when issues arise with the appraisal, and all questions, comments, or requests for additional consideration must go through the AMC.
There were initial issues with transferring appraisals between lenders if a new lender had to get involved for various reasons. Still, many lenders will allow transfers to and from other lenders if they confirm that the appraisal meets HVCC standards.
We specialize in mortgages for first-time homebuyers, conventional home mortgages, refinance loans, reverse mortgages, and FHA, VA, and USDA mortgage options. In addition, we’ve worked extensively with cash-out refinancing and help clients to lower their monthly mortgage payments.