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What is Home Valuation Code of Conduct (HVCC)? The Five Most Important Things About the Home Valuation Code of Conduct:
1. For consumers - it means that the cost of an appraisal has gone up. 6 months ago, a standard appraisal in my area would cost between $275 and $300. Now, that same appraisal is going to run $375. What does the consumer get for his additional $75? Basically, he gets one thing. He gets a bit more comfort that the appraiser isn’t necessarily a friend of the Realtor or the lender and he doesn’t need to be as concerned that the appraiser is being pressured by someone to “meet a number” so the deal gets done. 2. For Realtors - it means that they can’t rely on “a friend” to get the deal done. The days of working with the local appraiser who knows pretty much the entire market are over. Now they have no impact on who does the appraisal. So what does that mean? It means that they are probably going to be getting some appraisers who don’t know the market as well. What does that mean? It means the Realtor has to not only know the market, they have to have the data available and be able to pass that information quickly and easily to the appraiser. I don’t believe that it would violate any rules if the Realtor were to look up what they feel are the 6 best comparables, print the information and have it waiting at the house when the appraiser went through. 3. For Lenders - the days of calling up an appraiser to “see what they think” about the value of a house are gone. I was talking to a prospective refinance client the other day and he didn’t qualify for the “Obama” loans because he was pulling cash out to pay off a rental property. Whether the deal would do what he wants would depend on the appraisal. I used to be able to call an appraiser and discuss the deal with him and give the client a “good feeling” about whether it would work or not. Not any more. Now I had to tell the customer to check www.zillow.com or talk to a local Realtor and do their own research to determine whether it was possible to get that value and whether it’s worth spending $375 to “try it.” The opportunity to help with advice and counsel in that way is now gone. On the flip side, consumers don’t need to worry about an unscrupulous lender pressuring the appraiser to get a “higher” than true value so the deal would close. 4. For Everyone - time. This is probably the biggest difference with the HVCC. I remember a transaction where we got the appraisal done in 24 hours so that the buyers could take possession of the house when they got back from their honeymoon. That wouldn’t happen any more. Plain and simple, the layers of management, administration and quality control that have been put between the front line lender and the appraiser are making anything less than a 2 week turn around time somewhat miraculous. Oh, and it makes it very important to make sure when you are writing a purchase agreement and/or locking in an interest rate that you give it enough time for today’s realities. 5. For Everyone - coordination. Nope, I’m not talking about the ability to dance or ride a bike or anything like that. I’m talking about coordinating the details on a file. The client, the Realtor and the lender need to be in constant contact between when the purchase agreement gets signed, inspections done and the appraisal ordered to make sure that not a day gets missed. I had a file earlier this year where I talked to the Realtor in the transaction two days before inspections were to be done. I said, “Let me know when inspections are done so we can order the appraisal.” He neglected to let me know and I didn’t follow up with him for a number of days. Long story short, it was a bank owned property, the delay due to the appraisal cost the buyer $100 per day and I made $300 less on the deal because I felt at least partially responsible for the delay. Those type of delays are not tolerable in today’s market and you need to work with people who are organized enough to avoid them. Is the HVCC a good thing? I’m not so sure that it is. But, is the HVCC the end of the world? Nope, it’s not that either. It does prevent the unscrupulous lenders and Realtors from blackmailing appraisers, but it also adds a layer of bureacracy and red tape that is hard to work through. So, let’s all take a deep breath, work with the system and make the necessary adjustments. We’ll be fine. |
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| What is an Appraisal? An appraisal is a document that gives an estimate of a property's fair market value. An appraisal is generally required by a lender before loan approval to ensure that the mortgage loan amount is not more than the value of the property. The appraisal is performed by an "appraiser" who is typically a state-licensed individual trained to render expert opinions concerning property values. In an appraisal, consideration is given to the property, its location, amenities as well as its physical conditions. What are Appraisal Methods? Appraisers use three common approaches when establishing the value of a given property: 1. Cost Approach: In this approach the following formula is used to arrive at the property value: Value of the land (vacant), added to the cost to reconstruct the appraised building as new on the date of value, less accrued depreciation the building suffers in comparison with a new building. 2. Sales Comparison Approach: In this approach the appraiser identifies 3-4 comparable properties in the neighborhood which have recently been sold. Ideally, the properties are close in vicinity (within a 1/2 mile radius of the subject property) and have sold within the last six months. The appraiser then compares the sold properties to the subject property. The factors used in the comparison include square footage, number of bedrooms and bathrooms, property age, lot size, view, and property condition. 3. Income Approach: In this approach the potential net income of the property is capitalized to arrive at a property value. This approach is suited to income-producing properties and is usually used in conjunction with other valuation methods. The process of converting a future income stream into a present value is known as capitalization. After thorough exercise of the three approaches, a final estimate or opinion of value is correlated. When evaluating single-family, owner-occupied properties, the sales comparison approach is most heavily weighted by an appraiser.
| | Who owns the Appraisal? Even though the borrower pays for the appraisal, the mortgage company owns it. This is because the mortgage company orders the appraisal on the borrower's behalf, and the appraiser lists that mortgage company on the appraisal report. However, the borrower has the right to receive a copy. It is at the mortgage company's discretion whether or not to give the borrower the original appraisal. Can I use another mortgage company even after the appraisal has been completed? Yes. In most cases, changing your mortgage company does not mean you will have to pay for another appraisal. The first lender can transfer the appraisal to your new lender. Some appraisal firms may charge a small fee, however, because there is clerical work involved in editing the appraisal to reflect the new mortgage company. This fee is called an "Appraisal Retype Fee." The original mortgage company has the right to refuse to transfer the appraisal to another lender. In this event, you will need to get a new appraisal. Who determines the market value of a property? The seller of the property is the person who sets the price of the property (specially residential property), and not an appraiser. This is because sellers normally do not order an appraisal when selling their homes. Sellers wish to obtain the highest selling price possible for their homes and hence do not want to be bound by the appraiser's assessment of their home. The real estate agent, who receives a percentage of the price as compensation and often represents the seller in the transaction, normally assists the seller in setting the sale price. The real estate agent performs a comparative market analysis (CMA). The appraisal laws in most states allow real estate agents to perform CMAs without an appraiser's license or certification. A CMA is a necessary part of the agent's preparation for a listing and consists of examining sales of properties in the area to arrive at a listing price. The reliability of the CMA depends upon the agent's experience and the characteristics of the property and the surrounding area. Typically, the agent will suggest a selling price to the seller based upon the analysis. However, the seller may not accept that price and choose to list the property for a higher price. Assisting your Appraiser In order for the appraiser to perform his/her job properly there might be requirements for additional information. Some information that may be requested is as follows: - What is the purpose of the appraisal?
- Is property listed for sale and if so, for how much and with whom?
- Is there a mortgage? If so, with whom, when placed, for how much, type of mortgage [FHA, VA etc.], interest rate, and any other types of financing.
- What personal properties, such as appliances, are included in the property?
- If it is an income-producing property, a breakdown of income and expenses for the last year or two and a copy of lease might be required.
- Provide a copy of deed, survey, purchase agreement or other pertinent papers pertaining to the property.
- Provide a copy of current real estate tax bill, statement of special assessments, balance owing and on what [sewer, water, etc.].
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