The recent settlement agreement with the Office of Federal Housing Enterprise Oversight (aka – OFHEO) in which the mortgage industry agreed to changes on how appraisals are processed contains many needed and necessary changes to help clean up an industry in disarray. The new Home Valuation Code of Conduct – known as HVCC – imposes changes on how real estate broker and agent are able to interact with appraisers. These changes will significantly and dramatically affect the value of your San Mateo home, impact the process of selling your home, probably increase the closing costs to purchase your San Mateo home, and create a higher risk to purchase your home. New rules may not make the system better; the rules may make the system less efficient and miss its goal by wide margins.
What Do the New Appraisal Rules Mean to Sellers?
- Delays. Lenders can – probably justifiably so – blame the new HVCC appraisal process for the lengthy processing times slowing down the selling process to unnecessarily long escrow periods. Sellers will wait longer to get their money.
- Longer processing times. Mortgage brokers no longer control managing and scheduling appraisals. This most certainly necessitates longer interest rate lock periods or extending rate lock periods that will increase buyer’s loan costs.
- Out of area appraisers. If an out-of-area appraiser is selected, his or her lack of local knowledge could result in a significant under valuation of your San Mateo home unjustly. With several thousand micro-markets in San Mateo County, knowledge of the neighborhood nuisances and local idiosyncrasies is essential to arriving at genuine market value.
- Long term effects. The apparent attack on your San Mateo home will have long term effects. If a buyer voluntarily or involuntarily backs out of the purchase, you are back to Step #1. While you waited for the buyer’s loan approval, interest rates may have increased, loan requirements and programs may have changed or been withdrawn, more competitive homes may have come on the market, and the best buyer for your home may have bought something else.
What Do the New Appraisal Rules Mean for Buyers?
- Delays and Disappointment. A “bad” appraisal on the San Mateo home you truly love and truly want to buy will not help you get a steal of a deal. A “bad” appraisal will anger the seller, usually causing them to reevaluate their plans and probably cause your purchase to fail. You will have time, money and energy invested; all of which will be wasted and the money you paid for appraisals and inspections will not be refunded. No one is well served by flawed appraisals.
- Financing Contingencies. The newly mandated process for ordering appraisals through the AMC can make it impossible for the buyer to remove financing contingencies in a timely fashion causing frustration and potential conflict between the buyer and seller. The buyer and seller are already to some degree in an adverse relationship. Interjecting an unqualified 3rd party (appraiser) into the equation is mindless.
What Do the New Appraisal Rules Mean for Mortgage Brokers?
- Mortgage Brokers do not control selecting an appraiser. San Mateo mortgage brokers are not allowed to select the appraiser; appraisals are now ordered in the lender’s name. Appraisers have customarily been chosen based on the quality of their work and knowledge of the area. This loss of control of an integral part of the loan origination process will undoubtedly increase processing times and add to the buyer’s loan costs and dissatisfaction with the bureaucracy.
- Appraisers selected with no regard for local knowledge of quality of work. Appraisal clearing houses will assign appraisal assignments for arbitrary reasons with little – if any – regard for local knowledge or the quality of the appraiser’s work. As more flawed appraisals surface, the integrity of the appraisal profession diminishes as real estate agents and the consumer suffer.
What Do the New Appraisal Rules Means to Appraisers?
- Appraisers must register with Appraisal Management Companies (AMC’s). Independent appraisers – no longer independent – are forced into a relationship with an AMC. In this relationship, the appraiser must give 40% or more of their income to the AMC. The average appraisal in the San Mateo area is approximately $400.00. Now those appraisers will make $340 for the same work product. That appears to most people as a governmental imposed pay cut. Will a pay cut produce a better, more cost effective work product? What might happen to the quality of the appraisals? Appraisers who have worked hard to build relationships and reputations for high quality work have overnight been stripped of their stature.
- No communication with appraiser. Appraisers can no longer engage in ANY communication with mortgage brokers, loan officers, agents, or any other person who may receive a commission in relation to the loan transaction. This is a unique predicament… appraisers are not allowed to talk to their clients, a restriction not imposed on any other industry. Relationships and reputations appraisers have nurtured are rendered meaningless overnight.
Is Regulation Needed? Yes. But HVCC Misses the Boat
Certainly there needs to be better regulation and oversight on the appraisal business, but the HVCC misses by more than a bit. Excellent appraisers with demonstrable skills exist in every market area and they should not be penalized for those that have created the problem. Since the government has chosen to mandate rules that will adversely affect an already fragile Northern California Real Estate market, buyers and sellers need to better understand the process so they can work together through escrow in a co-operative fashion to arrive at their mutually desired goal…. the sale of a property.
Considering Buying a San Mateo Home?
Check out our Buyer Representation Page to learn about a different kind of REALTOR®. Just for fun, make sure you check out our San Mateo home search page. And, we can recommend a lender with a unique approach to HVCC’s new appraisal regulations that will ensure your transaction is minimally impacted.
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Raymond Stoklosa, Chela Stoklosa and Rebecca Williamson are Realtors with The RayChel Realty Group specializing in Santa Clara and San Mateo Real Estate.