How the Home Valuation Code of Conduct Affects Realtors
The Home Valuation Code of Conduct 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 by brokers. Fannie Mae and Freddie Mac will not accept loans on or after May 1, 2009 that do not adhere to the Home Valuation Code of Conduct.
What does this agreement mean for Realtors?
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.
HVCC removes broker, realtor, buyer, and seller control over the appraisal process. Brokers will not 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 know as AMC’s, these third-party companies have been hired to ensure appraiser independence and alleviate pressure on appraisers to appraise properties at certain values.
*HVCC does not apply to FHA, multi-family properties, or appraisals for non-lending purposes. For example: list price determination, market value estimate, divorce settlement, estate valuation, or tax appeal.
How can Realtors ensure their Clients get Quality Appraisals?
Some realtors are suggesting 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 AMC’s 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 a clause to the sales contract, realtors help promote quality appraisals for their clients, while still complying with the Code.
About the author
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. She is experienced in the valuation of all types of real estate, including detached properties, condominiums, and vacant land, as well as income producing properties such as apartment complexes, retail and industrial buildings, and hotel investment properties. Dione is a member of the Entrepreneur’s Organization, the National Association of Independent Fee Appraisers, the Chicago Association of Realtors, the Employee Relocation Council, and is a Regional Representative for the Chicago Chapter of the Appraisal Institute.
