According to various media reports, the financial regulatory reform bill that was recently signed into law could result in more accurate home valuations, higher appraisal costs, faster closings, more completed transactions and perhaps higher prices, according to critics of a controversial Home Valuation Code of Conduct — the quasi-governmental regulation that the new legislation eliminates.
Enacted in early 2009 by Fannie Mae and Freddie Mac, the Home Valuation Code of Conduct (HVCC) was intended to reduce mortgage fraud and collusion. However, instead the HVCC generally caused chaos, as well as increased costs and delays in the closing process.
The new law eliminates the HVCC and creates a new Bureau of Consumer Financial Protection that takes over and that is charged with carrying out the first modernization of real estate appraisal regulations in more than 20 years. Critics have stated that the 2009 regulations forced lenders to use appraisal management companies that charged less and lacked the manpower to provide timely appra isals, often using appraisers from outside the local marketplace who were unfamiliar with market conditions.
As I write this post, I now find myself in the middle of a situation which the new legislation intends to correct. Unfortunately, the bill wasn’t enacted soon enough for my clients. The buyer’s lender, on a Lafayette, CA real estate property represented by me, sent out an appraiser who represented herself as being a “local, Lafayette appraiser”. She spoke and apparently understood little of the English language, and it turned out that she was sent from outside the county with little or no experience in Lafayette real estate. Her description of the subject property was inaccurate and incomplete, and her selection of “comparable” properties poor. Worse yet were her valuation adjustments to the “comparable” properties, which clearly demonstrated her lack of knowledge and familiarity with the Lafayette market areas, as well as inaccuracies in the comps. Bottom line, her appraisal came in below the agreed upon purchase price, and I find myself consumed with having to write a lengthly rebuttal and appeal letter.
The buyer has the option of coming up with the difference in value in cash; attempting to renegotiate the purchase price; taking the loan to another lender; or simply terminating the purchase via his financing contingency. The person most affected by the appraiser’s incompetence is the Seller. IF the purchase price is renegotiated, the incompetence of the appraiser and a flawed system will be responsible for lowering property values. In the end, we’ve all been hurt by this process.
