New industry wide appraisal standards went into effect at the first of this month. Now, mortgage companies will not be able to directly order appraisals, or request specific appraisers. Mortgage brokers and loan officers actually will not know who is doing an appraisal until after the fact. A mortgage company will request an appraisal, which will then be ordered by a new middleman, a third party vendor management company, or AMC, Appraisal Management Company. The mortgage company will receive the completed appraisal, at which time they will know who the appraiser was.
The theory is that mortgage brokers and loan officers, because of their vested interest, should not be allowed to choose or influence appraisers. This change came about as part of the new Home Valuation Code of Conduct. These new rules have been designed to enhance the accuracy and integrity of the appraisal process. Freddie Mac will no longer purchase mortgages from sellers who do not adhere to the HVCC.
In spirit all this is supposed to give a more accurate picture of what a property is worth. Also new is the Market Conditions Addendum to appraisals, which is designed to provide lenders with insight into market trends and conditions by requiring additional information including the number of similar homes sold in the last 7 to 12 months, the last 4 to 6 months and the last 3 months, and the market absorption rate. It has never made sense to me how prices could go up if they had to be justified based on past sales alone. And, this new system seems like it will keep us locked in a vicious cycle. The FAQs in regard to the new standards address what to do if there are not enough comparable sales. It states that a lack of data may speak to what the market trends are. Following this logic, how can we expect things ever improve?
What happened to the idea that a home is worth what a buyer is willing to pay for it? And I’m afraid the old real estate adage, Location, Location, Location may fall by the wayside if independent appraisers are not in tune with specific areas enough to know the added value of in-town and hot, highly desirable areas such as Myers Park.