Further Thoughts On HVCC

If you follow this blog, you know that I’ve posted a lot about the new appraisal guidelines and that there is quite a bit of controversy surrounding them. I’ll leave links at the bottom to my prior posts but right now, I want to offer some quick thoughts based on some reaction I’ve had to my posts.

First, if you aren’t familiar with the issue, it involves the implementation of the Home Valuation Code of Conduct (HVCC) which was instituted to put a layer of insulation between interested parties in a mortgage transaction and the appraiser. The HVCC requires appraisals to be ordered by the lender through what is known as appraisal management companies. Neither the mortgage broker, realtor, buyer nor seller is allowed to have any contact with the appraiser.

The point of the HVCC is to eliminate pressure on the appraiser to come in with a pre-determined value. Properly, it recognized that there were many instances of fraud during the housing bubble and it seeks to eliminate that opportunity. I generally agree with the aims of the legislation and have so stated in my previous posts.

I have received a lot of commentary some in favor and some opposed to the legislation and its implementation. The gist of the anti comments has been that appraisals were coming in too low at the direction of the appraisal management companies, that the appraisal management companies were using inexperienced appraisers and that the appraisal management companies were skimming too much money off the top.

I thought it worth sharing with you an email I received Friday evening from an appraiser in Northern California. Take a look at it and then I’ll give you my views, somewhat tempered from my previous support position.

Dear Tom,
I’m a certified residential appraiser who is losing my house and will soon be forced to drive a cab. But this is not about me. I was solicited by an appraisal management company to perform 38 appraisals per month for $ 87 per each appraisal. The fee they collect for each appraisal is $ 400 – $700. They tried to spice up the deal by offering me 401K and group medical. From my experience AMCs are only interested in 2 things: 1. how little of the total fee you are willing to work for 2. how many reports you can complete per day. AMCs are simply appraisal mills who are becoming monopolies which try to do away with all competition. They are self-appointed “management companies” which are unregulated entities. Middlemen who use their position to keep most of the appraisal fee. AMCs are our competition which our clients are forced to use and they were instrumental in writing HVCC in the first place. You can go to Craigslist, in many cities, and see that they typically offer $ 150 – $ 200 for $ 400 – $ 600 report to the person who does all the work. I, personally, will not work for less than 75% of the fee (even that is outrageous) - anything else, considering the amount and type of work involved, would be an insult to my profession. And even if you are desperate to make any kind of living many AMCs don’t put you on their list. Their typical response to many appraisers: “we will contact you if we need additional appraisers in your area.” Also, they often try to influence appraisers to reconsider values. And they have a tremendous amount of leverage. In the past, you could tell a client, who insisted on a certain value, to take a hike. There were a lot of clients. Well, there are not that many AMCs in the area. If you don’t do what they tell you then you’ll be out of business in a hurry. Why not? They are not responsible. It’s the appraiser who signs the report. I have been an appraiser for over 20 years with an established clientele and had my clients taken away from me overnight. Not a single order in 1.5 months. Which other profession had it’s ability to make a living taken away?
Consumers suffer because appraisers who are willing to work for $ 175 are unprofessional and inexperienced. Why would they take their work seriously for such small fee when they can low-ball the value and basically take no risk at all? Homeowners are forced to pay for multiple appraisals none of which can be reliable.
The bottom line is: it has very little to do with consumer and lender protection and everything to do with money grab by “management companies” (actually, we should manage them, not the other way around) and some banks who have partial ownership in these companies. Why don’t we just have attorney management companies, or plumbing management companies who would keep 50% of total fees for distributing work orders. We, appraisers are heavily regulated by the State and professional organizations. AMCs are not regulated by anyone.
The only people who are against repealing HVCC are either AMCs, people who share in their profits, or others who do not know about all of the ramifications and horror connected to it.
Sincerely,
Michael
San Rafael, CA
I received a lot of comments similar to Michael’s, enough in fact to make me rethink my positions. Let me first say unequivocally that I would not support a return to the old system. There were just too many appraisers who ended up in the pockets of realtors and loan officers. Inflated appraisals were part of the problem.

Nevertheless, if under the new system professional appraisers are priced out of the market then that’s an unacceptable result. We need now more than ever appraisers with a good bit of grey hair. Appraisal management companies are entitled to a profit but it can’t be achieved at the expense of degrading the appraisal process.

I wish I could offer a simple solution to the problem. Resorting to some sort of government mandated fee schedule is probably the least attractive option. It may well be that increasing the fee for a residential appraisal is the best solution. We have introduced extra players into the equation and to pay for their services the consumer might just have to absorb a bit more cost. If that’s the direction this takes then it’s incumbent on the appraisal management companies that they not take advantage of the situation and seek to capture the increased fee.

The Michaels of the world shouldn’t be asked to shoulder all of the cost for fixing the appraisal system. This is another case in which private enterprise would be best advised to fix the problem themselves or be resigned to a government fix if they can’t temper their greed.

more: here (This link will take you to my last article with links to all previous articles)
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