New Home Valuation Code of Conduct (HVCC) is a Quagmire

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The real estate industry has been operating under the new HVCC guidelines for a couple of weeks now and we are beginning to see the ugly results of this misguided set of government regulations.  In a preliminary report issued this past week by the National Association of REALTORS® (NAR), it finds that the HVCC is having an adverse impact on housing markets.

Before I get into the actual results, let me spend a minute and tell you about what this new set of guidelines was supposed to do.

The HVCC was intended to promote independence in the appraisal process and, thus, help ensure that appraisers and the appraisal process may be relied upon as part of sound underwriting for financial institutions.  What that actually means is that the loan officer who is working on your loan no longer orders the appraisal on your home.  It is done through the lender who either has an in-house process for appraisal management issues or, more often, it is done through something called an Appraisal Management Company (AMC).

While this may not seem like a big change to you if you are buying a home, it can possibly be a much bigger change than you might think.  Prior to May 1, loan officers, REALTORS® and appraisers all communicated as needed regarding your home and home financing and it wasn’t uncommon for everyone to be on the same conference call if needed.  But now that the HVCC rules are in place, the only way the loan officer or REALTOR® will know who the appraiser is is if by chance the appraiser calls them.  In other words, no one talks to anyone to clarify anything!

Now, on to the findings of NAR’s analysis:

• 76% of REALTORS® representing buyers or sellers indicated that the time to obtain a completed appraisal increased after May 1; 69% of those reporting increased appraisal times reported an increase of more than 8 days.  (Comment: Anytime you increase typical waiting periods, someone is going to suffer.)
• Time for an appraiser to submit an appraisal to the AMC decreased, as reported by 71% of NAR Appraiser members.  (Comment: Here’s a head-scratcher.  It now takes longer to get the appraisal but the appraiser has less time to produce it.  I think I hear the sound of superfluous personnel shuffling paperwork in the background.)
• Lost sales were reported by 37% of REALTORS® attempting to complete home sales, with 17% reporting one lost sale and 20% reporting more than one lost sale.  (Comment: Ugh!  Do I even need to elaborate.)
• An increased use of out-of-area Appraisers was reported by 70% of REALTORS® seeking to complete a sale.  (Comment: Appraisers being assigned by AMC’s to unfamiliar neighborhoods and product can only lead to sub-standard results.)
• Approximately half of NAR Appraiser members reported a reduction in fees received by them and 70% of NAR Appraiser members reported that consumers were paying higher fees.  (Comment: Let’s see – the appraiser gets less and the consumer pays more.  What’s wrong with this picture?)

Enough is enough!  In just a short period of time, the HVCC grand experiment has failed miserably.  It’s time for these guidelines to go the way of the Dodo bird.

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Statistics were obtained from the following web site source:
Smith, Jed. “On Appraisals: The Impact of HVCC.” REALTOR.org. Published: 6 July 2009. National Association of REALTORS. Accessed: 12 July 2009 <http://www.realtor.org/research/economists_outlook/commentaries/appraisals0709>.

Related articles of interest:

• HVCC: What Is That? (phoenixarizonarealestatehomes.com)
• New Appraisal System (HVCC) Impacts Consumers (appraisalnewsonline.typepad.com)
• Appraisals may be chilling home sales (seattletimes.nwsource.com)
• Realtors: New Appraisals Hurting Housing Market (hsh.com)
• HVCC…I’m not making this stuff up. (raincityguide.com)