Gary’s Note: There have recently been issues with real estate deals not appraising at their contracted price. The article below, provided by Marc Jacobs of A&N Mortgage, explains some of the reasons why.
Today I wanted to discuss the Home Valuation Code of Conduct (HVCC), which went into effect May 1st of this year. While it may seem like old news, there are consequences that may effect a buyer’s financing options and ultimately your profit. The purpose of the rule is to prevent any influence mortgage professionals may exert over an appraiser. Therefore, an uninterested party must be responsible for ordering the appraisal.
The rule doesn’t apply to all lenders equally. These are the distinctions that need to be understood before a buyer chooses a lender. I will discuss the procedures used by large banks, mortgage brokers, and finally mortgage bankers like my company, and why mortgage bankers provide the best possible alternative for getting fair appraisals.
Large banks, like Wells Fargo, Chase, Citi and Bank of America use Appraisal Management Companies (AMC) for their appraisals. These are national companies, many of which are not at all familiar with the areas they are appraising. The consequences are that properties are being appraised for under market value. Another reason for the low appraised values is that many of these large banks have ownership in the AMC’s. Therefore, it is likely that after writing off billions of dollars in bad loans, they are making sure that the appraisals are as conservative as possible. Lastly, banks that use AMC’s sometimes wait two weeks for the appraisals to be done.
Mortgage Brokers are not allowed to order an appraisal at all. The lender that is financing the broker’s loan will order their own appraisals, utilizing either the system mentioned above or one similar with all the same consequences.
Mortgage Bankers are able to use an alternative procedure, which I believe to be the best and most efficient. While I can not personally order an appraisal, there is an impartial employee at my company who can. The advantage is that we use local appraisers who have years and years of Chicagoland experience. Our appraisers do not work for bank owned AMC’s. Rather than looking for ways to lower their value, they search for ways to justify a higher value. In addition, we can track the progress of the appraisal which makes the turn around time only 24-48 hours. From my experience, HVCC has been much less of a burden for my realtor partners than those using large banks and mortgage brokers.
In today’s turbulent real estate climate, we certainly don’t need unnecessary obstacles making it more difficult to close deals. As you can see, it is very important to choose the right lender. Big is not always better.