Central Ohio Real Estate Market News

On May 1, the national rules for real estate appraisals changed dramatically for lenders who sell their loans on the secondary market. In order to sell their loans, they must conform to the rules set by Fannie and Freddie Mac. Those rules require a lender to adopt the HVCC – Home Valuation Code of Conduct.

The key changes required by the government are:

• Lenders can no longer order appraisals directly from local appraisers that they’ve come to rely on and trust. Now they must order an appraisal through a 3rd party appraisal management company, who will order the appraisal.
• Those 3rd party companies will in turn order an appraisal from their own network. Their network is made up of appraisers willing to work for far less than they normally receive.
• Appraisers normally receive $325-$350 for their work. The management companies may only pay them $175. The difference is retained by the management company.
• There may also be a change in the amount charged with one wholesale lender reportedly charging a flat fee of $455 through the 3rd party management company.
• In the past, buyers (or homeowners refinancing) were able to pay the appraisal fee at closing. Now that fee will be required upfront.
• If the 3rd party’s appraiser is unfamiliar with the local market and generates an under-valued appraisal, a new appraisal may need to be ordered. This will result in a second fee charged to the buyer (or refi-ing homeowner).

(The above information was provided by the Ohio Association of Realtors® May 2009 newsletter.)

Last fall I wrote a post about an appraiser who called me for info on a home. As you can read, that appraiser had no knowledge of the area or the home she was appraising because she was from Springfield. OH – not from the Columbus market. Because of her lack of knowledge of the area and the differences in builders, there was a good chance that her appraisal came in below the purchase price – causing grief for both the buyers and the sellers.

Adding to this predicament is finding appraisers willing to work for half the pay. Even if they do agree, one wonders whether they will do the same conscientious job as they did when they were earning more. Ask yourself how you would feel if your employer suddenly cut your salary so they could pay a “middle-man”?

While the intent of the government was to eliminate the opportunity for fraud being committed, as occurred during prior years, they are now punishing hard-working, honest appraisers and home buyers and sellers. If the out-of-area appraisers submit too many under-valued appraisals, forcing sellers to lower their price to keep the transaction in-contract, then ultimately we’ll see home values decline unrealistically. While we don’t support over-valued appraisals either, certainly there is a better way to ensure an honest, fair, and realistic appraisal without government intervention.

According to the OAR report, these rules only apply to mortgages that will be sold on the secondary market. If a buyer chooses an FHA loan or a lender who does not sell their mortgages, then the HVCC may not apply. When selecting your lender, you might want to discuss this issue with them so you’ll know what you may be facing as you go forward in the home buying process.

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