By Dione Spiteri
The new Home Valuation Code of Conduct (HVCC) was established by Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. In short, the HVCC sets forth a series of guidelines that govern appraisal-related activity among mortgage companies for loans that are sold to Fannie Mae and Freddie Mac in an effort to reduce the risks associated with the appraisal process. Most of the HVCC’s stipulations are focused around ensuring objectivity in ordering real estate appraisals performed by brokers. After May 1, Fannie Mae and Freddie Mac stopped accepting loans that do not adhere to the HVCC.
What does this mean for Realtors? Now, with the new law, individual Realtors and licensed real estate agents cannot serve as the third party between a lender and appraiser. This includes selection, retention and compensation of an appraiser. A third party, including Realtors and real estate agents, can still ask appraisers for additional information, provide additional information to an appraiser or ask for corrections of factual errors. Realtors that offer services as a lender must comply fully with the HVCC for all loans that will be purchased by Fannie Mae or Freddie Mac after May 1, 2009.
The HVCC removes broker, Realtor, buyer and seller control over the appraisal process. Brokers will no longer be able to order appraisals directly from appraisers; Realtors, buyers and sellers will not be able to order appraisals for their lender in order to secure financing. Lenders and banks will be the only authorized parties to order appraisals directly from appraisers or through Appraisal Management Companies. Otherwise known as AMCs, these third-party companies have been hired to ensure appraiser independence and alleviate pressure to appraise properties at certain values.
The HVCC does not apply to FHA, multi-family properties or appraisals for non-lending purposes, such as list price determination, market value estimate, divorce settlement, estate valuation or tax appeal.
How can Realtors ensure their clients get quality appraisals? To ensure that they are receiving quality appraisals, some suggest that all Realtors protect themselves from lenders engaging appraisers outside of the immediate market area by adding an additional clause to the sales contract that states:
“Buyer shall have all the rights and provisions manifested by the Appraisal Contingency provided that the appraiser the buyer’s lender selects has competency in the market area and has completed appraisal reports in the immediate submarket within the past year.”
As many lenders will utilize a radius search to find appraisers for assignments, unique market areas that require specific competency will have a higher incidence of errors in the appraisal report. This can often be alleviated if the appraiser lives in the same county as the subject property. Many AMCs will choose the lowest cost appraiser that can meet aggressive turn times, instead of focusing on the quality of the report and the market competency of the appraiser. By adding the above clause to the sales contract, Realtors help promote quality appraisals for their clients, while still complying with the Code.
Dione Spiteri is the director of US Appraisal Group, which she founded in 2003 to offer the first customizable management solution for real estate appraisals to lenders, attorneys, relocation companies and corporations. Spiteri can be reached at [email protected], or Visit
usappraisalgroup.wordpress.com for more information.