Appraisals – One More Hurdle to Homeownership
There has been a flutter of talk about the new Home Valuation Code of Conduct (HVCC ) rules that went into effect May 1, 2009. Much of the discussions surround the growing problem of timely and accurate appraisals. If you have purchased a home in the last few months, you know what I’m talking about.
Recently, my business partner and I were helping a first-time home buyer purchase a home in King George County. We knew we would have obstacles to overcome because this buyer wanted to purchase one of the few condos in the entire county. This was a traditional sale, FHA financing, 30-45 days to close. The transaction should have been cut and dry, except for the FHA Spot Approval for the condo association. However, once the appraisal finally came back, just few days before scheduled closing, we had some pretty big problems. The appraisal was performed by an out-of-state appraiser and it came in $700 low. Yep… $700. Now, one would think that you can’t squabble that much over $700, but you can. After a few weeks of negotiating, it was finally agreed that the sales price would be lowered to reflect the appraised value. But, we weren’t out of the woods yet. Upon looking at the original appraisal, someone in underwriting had a problem with it. Of course they did! A field review was demanded by the buyer’s lender. The buyer had already paid for a $400 appraisal on a $125,000 condo. Now the buyer had to pay another $150 for a second appraiserto look over the first appraisal. A few weeks later it was finally determined that the first appraisal was, in fact, accurate on value, but not accurate on other vital information about the property. That information needed to be fixed by the original appraiser. After all this, we closed a month late and interest rates went up 1%.
This is not an isolated incident. Numerous REALTORS(R) and consumers are encountering similar scenarios. Danilo Bogdanovic of www.LoudonScene.com writes a very interesting post on issues with HVCC, “Buyers Lose Offers, Pay More Thanks to New HVCC Appraisal Rules“. Rather than recreate the wheel, I’ll introduce you to his post. You can also get a fantastic explanation of the new HVCC rules on Chris Griffith’s post, “The HVCC Wal-mart Effect.”
One thing’s for sure, purchasing a home got a lot harder as of May 1, 2009. Something must be done to rescind rules that are hurting, rather than helping, the consumer!
Sarah – Here’s an update on the situation:
I just attended a DAAR symposium with “top dog” reps from HUD, Bank of America/Countrywide, the mortgage industry as a whole and local government and the sad thing is that,
1) they have no clue what’s really going on in real life thanks to the “helpful programs” they’ve created or left unchanged since 1950
2) they have no clue how to fix the problem
3) they spent much of the time deflecting or dodging and
4) their attitude is more of a “don’t worry about it and it will just goes away”
The fact is that the real estate transaction is getting harder and messier for real estate professionals and consumer (sellers and buyers) by the day and no real help is on the way.
Had the same low appraisal, field appraisal issue on a condo in Annandale. What good does a “drive by” do on a condo?? This was totally renovated by a contractor. Made no difference – the still came in low and seller had to lower price. I also made an offer for a client on a townhouse but seller said it would never appraise at our offer and took a lower one. I’m hearing these stories from many Realtors. Now we have the banks AND the appraisers making it impossible to sell homes!
Today after *finally* getting an offer submitted on Bid Select dot com I wondered to myself. This home is probably not going to appraise and then what? That, my friends, is the government sandwich. It didn’t even come with fries.
Stories like yours are becoming more common with the adoption of the HVCC. One thing to note however is that it does NOT apply to FHA or VA loans: http://agentgenius.com/real-estate-mortgage-economy/mortgage/fha-says-no-to-hvcc/
Appraising isn’t an exact science, so the being $700 below the purchase price is just ludicrous.