Why you should ask your agent to be proactive during the appraisal process
If you’re a homebuyer or you’re looking to refinance, you should be aware of yet another potential stumbling block to getting financing.
Obtaining an appraisal that accurately represents the fair market value of a home has become more difficult since the adoption of the Home Valuation Code of Conduct (HVCC) in May 2009.
The HVCC is meant to reduce the potential for the type of inflated property appraisals that often occurred during the real estate market boom, and which some believe contributed to the subsequent bust.
Third party appraisal management companies call the shots now
Instead of the lender (a mortgage broker or banker) selecting a preferred, locally experienced appraiser, third party “appraisal management companies” now control the process.
Lenders work through these independent companies to order an appraisal. But the appraiser may not be knowledgeable about the area where the home is located.
For example, an appraiser from Contra Costa County in the East Bay might be asked to appraise a hillside condo with views in San Francisco. The appraiser, lacking knowledge of the San Francisco real estate market, might use comps from condos with similar square footage and features but no views.
Lower values can be the result
The net result: The appraiser might assign a lower value to the condo with views than the actual sales price. If the appraisal and the sales price don’t jive, the loan could be denied.
HVCC, as you might imagine, isn’t particularly popular with some segments of the real estate industry, and there’s currently an effort to get it suspended.
In the meantime, you should make sure your Realtor is proactive during the appraisal process.
Arrive with comps in hand
When I meet an out-of-town appraiser at one of my listings to give him or her access to the property, I bring with me printouts of information about other homes that truly are comparable. During the appraisal, I’ll point out things I believe are important to the home’s value, such as renovations, storage, parking spaces, and views.
Often, appraisers will ask if they can keep the information I’ve gathered. The way I see it, the more I can help them do their job, the faster and more accurate the appraisal process will be for my client. Everyone wins in that scenario.
By the way, The New York Times did a great job explaining HVCC’s ramifications for agents, brokers, lenders, appraisers, and homebuyers.