Are Appraisals Slowing the Real Estate Market Recovery?

2 years ago

I had an interesting meeting this morning with an appraiser covering the Tampa Bay Real Estate area. To give you a brief history in May of 2009 the government started the Home Valuation Code of Conduct (HVCC) which greatly changed the real estate appraisal process nationwide. Like just about any new government program the idea came about with the best of intentions but the actual results may be hurting the housing market much more then it is helping.

The major part of HVCC was to completely remove all contact between the lender and the appraiser, by doing this they remove the possibility that lenders and appraisers were in cahoots in fraudulent loans on houses that had artificially inflated prices. These fraudulent loans which were a small fraction of the cause of the real estate bubble and this was set to close that loophole. So the idea behind this is great on paper but in reality here is what is happening:

  1.  In order to comply with HVCC, Appraisal Management Companies (AMC’s) were formed to handle all the appraisals for these large banks. (I wish I had the foresight to start one of these AMC’s!)
  2. Pre HVCC the lender would consult their internal approved appraiser list and chose an appraiser they knew was reliable and familiar with the area.  Now the lender goes to the computer and blindly puts in an order, having no idea what or who they will get.
  3. The appraisal order is then sent to sometimes hundreds of appraisers who are part of an AMC that has contracted with that lender and its first come first serve for the appraiser to get the order.

It sounds like it’s a good system but two major problems have been created. First, sometimes these appraisers are coming from hours away to do the appraisal and they are not in the least bit familiar with the areas. Second, even though you as a buyer might be paying $400 for your appraisal that money is given to the AMC and the AMC might only be paying the appraiser who is doing all the work $175 and the AMC keeps the rest! Have you ever heard the saying, “you get what you pay for”? Well that couldn’t be more true right now.  Since this system has started every Realtor I know has had a deal that fell through due to an inexperienced appraiser or one that didn’t understand the area. There are a lot of people who are opposed to the HVCC and are advocating it’s repeal.  I feel the same way. Yes there were some who abused the system but to punish all the good people for a few bad apples is not a solution.  Had it not been for HVCC I believe our real estate recovery would have started sooner and would be more robust.

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