Where is our Equity Phoenix? Appraisals and the new HVCC

Wonder why that home you just tried to purchase has a discrepancy between contract price and appraised value?  Do you know how your lender has to fight with the appraisal in underwriting just to try and make the deal your go to closing? 

 In 2009, the government introduces HVCC, the Home Valuation Code of Conduct, a set of rules created to prevent those who stand to profit from a real estate transaction from putting pressure on the appraiser.  In my opinion, this is leading to the stagnant market we are experiencing instead of allowing equity to return to our homes here in Maricopa Country and the Phoenix Metro areas.

The rules prohibit real estate brokers and mortgage brokers from ordering appraisals and require that lenders erect a firewall between loan production staff and the appraiser.  Since the rule out of this program, there has been protest not just in Phoenix but around the country.  The downtown of the market has been blamed on appraisers, saying they were working with the lenders to help increase property values.  Personally, I think the banks require far more of the blame, but that is for another blog.

 So now, with another extreme decision by our government, agents and lenders can have no control over appraisers.  We CAN talk to them only if contacted directly by the appraiser and only discuss the property’s condition and the contract price.  Before, if property value and appraisal were only off by $1000, the relationship between the lender and the appraiser would help bring the deal together.  There have been a ridiculous number of transactions which have fallen apart since the HVCC was ruled out in May, and many for less than 5%.

I understand there were some bad appraisers during the boom.  But now, when we are trying to regain some equity, it is nearly impossible to have an appraisal come in even any higher than the last comp which is keeping values stagnant.  For example, if the recent sales were $150,000, $152,000 and $155,000, the home will not appraise for $160,000.  It will likely come in at $156,000 or LOWER.  What if I had three offers within 48 hours, all between $155K and $165K?  Why are the appraisers not taking into account the demand for some of these (mostly distressed) properties and allowing them to sell at the highest bid??

This is really hurting FHA buyers as the appraisal sticks with the home for 6 months (although this will be changing to four months).  For example, if a buyer is trying to buy a short sale for $170,000 and the bank accepts this price, everyone is happy.  Well, what if the buyer’s lender sends out an appraiser and the property appraises for $165,000?  If the bank is not willing to budge, that appraisal sticks with the home and no other FHA buyers will be able to purchase the home for $170K unless they add $5,000 to their downpayment.  As a listing agent in this situation, he/she is limited to find cash or conventional buyers to help meet the value the bank needs at $170K.

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