Industry Report Finds Little Impact from Appraisal Rules

By:
Kirk Haverkamp | March 09, 2010

A widely disparaged set of new rules affecting home appraisals has actually had relatively little negative effect on real estate appraisers, according to a new study by an appraisal management company (AMC).

The study found that, although the new rules have reduced earnings for real estate appraisers, the impact is not as severe as has been widely claimed. In addition, the report said that most appraisers continue to focus primarily on doing appraisals in their own locale, rather than traveling large distances to do appraisals in unfamiliar communities as critics of the new rules have claimed.
 
Under the Home Valuation Code of Conduct (HVCC), realtors can no longer directly contact an appraiser to perform an appraisal of a property being considered for purchase. Instead, they must go through a third party, typically an appraisal management company, to ensure an arm’s-length transaction.
 

Rules affect most home loans

 
The HVCC, which took effect May 1, 2009, is not an official regulation but instead an agreement among Freddie Mac, Fannie Mae, the Federal Housing Finance Agency (FHVA) and the New York State Attorney General. Under the agreement, the first three agencies will not to purchase or insure any mortgages in which the appraisal did not follow HVCC guidelines.
 
Because those three agencies account for the vast majority of mortgages made in this country, the guidelines affect nearly all home loans except for high-value nonconforming loans and mortgages made by small lenders who keep the loans on their own books.
 
The rules were intended to address what was seen as a problem that contributed to inflated home values in the run-up to the subprime mortgage crisis, in which it was alleged that real estate appraisers felt pressured to hit a “target value” in assessing a home so that the sale could go through. Failure to do so, it was claimed, might mean that the real estate agent who requested the appraisal might look elsewhere in the future.
 

Total fees unaffected

 
The study found that two-thirds of appraisers charge the same amount for an appraisal regardless of whether going through an appraisal management company under HVCC guidelines or doing a non-HVCC appraisal ordered directly by the lender. Appraisers typically charged $350-$450 per appraisal, and retained $250-$350 for themselves, with the balance paid to the AMC.
 
Many private appraisers have complained of being required to pay far steeper fees to AMCs, retaining only $100-$150 per appraisal. Critics of the new rules have also said the AMCs often bring in appraisers from distant locales who are unfamiliar with local markets, producing erroneous appraisals, and that the new rules produce delays of one to two weeks on obtaining an appraisal.
 
The report said that two-thirds of appraisers said they travel an average of 10-20 miles from their place of business to conduct an appraisal, and that the average turnaround time was 2-3 days for a conventional appraisal and 4-5 days for an FHA appraisal.
 
The study was conducted by Coester Appraisal Group, a nationwide AMC.

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