The Housing Chronicles Blog: Some unintended consequences of the new appraisal law

Tuesday, June 9, 2009

Some unintended consequences of the new appraisal law

Although it's just been over one month since the Home Valuation Code of Conduct went live, there's already some concern that the law -- which requires that lenders set up a sort of 'third wall' in between lenders and appraisers -- has resulted in some unintended consequences, such as randomly assigning appraisers to value areas in which they have little or no expertise. From a story at

The new code, a pet project of former HUD secretary Andrew Cuomo, was an attempt to secure the independence of real estate appraisers, who, say the code's supporters, have been under continual pressure from lenders, mortgage brokers, real estate agents, and even home builders to inflate values. Under the new code, lenders have set up firewalls between their loan departments and their either internal or third-party appraisal services if they wanted be able to sell the loans on the secondary market to either Fannie Mae or Freddie Mac...

The pain points for builders when it comes to appraisal issues mostly fall into three categories that add up to one outcome: further price erosion.

First, builders have complained that under the new rules, lenders are selecting appraisers from a generic pool, which is resulting in what they feel are inaccurate valuations. Prior to the code's implementation, many lenders had appraisers assigned to specific projects and submarkets. Now, builders have argued, appraisers are being assigned work on a random basis, so fewer of them come equipped with specific knowledge of the submarket or project, which in turn, is affecting appraisal values..

The second issue, for builders, is that appraisers have begun factoring foreclosures and short-sales into their comparative analyses. Many builders felt that was unfair because by mixing distress properties with true market rate properties, values would be driven down more than they already have been.

The third concern related to appraisers' obligation to indicate whether they believe the properties being assessed are in declining markets or not. Builders questioned not only whether giving a forward-looking snapshot of the markets was reasonable but also were curious to know to what extent labeling a market as in decline could negatively affect the loan's funding...


Anonymous said...

We have a full price (849K) offer on our home in West Los Angeles, but the whole deal may fall apart because the appraisal came in at $770K. The comps the appraiser used were ridiculous: on very busy streets, not even in the same neighborhood, and not in the same highly sought after elementary school district. This person clearly had no knowledge of the area at all.

Anonymous said...

i am in same situation but i am the buyer and because my loan approval got delayed due to requirement of this new law and second appraisal came lower (from 525,000 t0 490,000 in orlando FL) now the buyers want to sue me because of this claiming a bridge of contract. anyone has any experience or opinions on their chances to get anything out this sue.