What Every Borrower Should Know About Home Appraisals

The housing crisis of 2007 changed everything in the real estate and mortgage market. One of the biggest changes rising out of the mortgage crisis are home appraisals. These are changes that are likely to impact you refinancing your home or buying a new home.

Therefore, the more you know about how your home gets appraised the more likely you are to get the mortgage you need.

Home Valuation Code of Conduct (HVCC)

Let’s start with what is causing all of the trouble–Home Valuation Code of Conduct (HVCC).

This little set of guidelines that governs the relationship between real estate brokers, mortgage brokers, loan officers, and appraisers was the result of New York State Attorney General (and current candidate for New York Governor) Andrew Cuomo spat with Fannie Mae and Freddie Mac. AG Cuomo’s thesis was that the mortgage industries strong-arm tactics on appraisers contributed to the housing bubble. These guidelines became gospel in a legal settlement between the two parties that required them to be adopted by Fannie Mae and Freddie Mac–still the largest holders of US mortgages.

Although the intent was to improve the independence of the decisions made by appraisers, the rules may have made the distance too extreme.

Appraisal Management Companies

The original premise of the HVCC was to remove the ability for individual mortgage and real estate brokers to hand pick their appraiser. Unfortunately, the rules and process were so cumbersome to manage banks and mortgage companies simply outsources the whole process. This gave the rise to a few large Appraisal Management Companies (AMC).

The result? Outsiders were appraising local real estate markets. And as most in the industry will tell you real estate is, “local, local, local.” You need to know the nuances that can make one block more or less value than the adjacent one.

5 Ways to Improve Your Appraisal

You certainly don’t want to game the system, but the more involved you are with the appraisal process the more likely you will get a fair and accurate home value. Here are 5 ways you should involved in the appraisal of your property.

1. Ask if your appraiser has local experience

Don’t be shy, ask your real estate broker or mortgage broker if your appraiser has local experience. You want that appraiser to be familiar with local real estate and trends. This is really important in a market that is as volatile as the current one.

2. Meet the appraiser at the property

Insist that you and/or your real estate broker is at the property during the appraisal. You want to make sure that someone is available to answer any questions the appraiser may have. You also want to make sure that your property valuation gets more than “drive by” treatment.

3. Make sure the appraiser knows what’s included in the sales contract

There is a lot of wheeling and dealing going on in this market. Many times seller are throwing in everything…way beyond the kitchen sink. Make sure that your appraiser is aware of any special provisions or inclusions in the sales contract (i.e., home theaters, special equipments, furniture, etc.)

4. Highlight your own comparables

Real estate has never been more local than it is today. Subtle differences in local economics, property taxes, city services, and school districts can cause large swings between adjacent neighborhoods. It is perfectly acceptable to make sure your appraiser knows what may make your home worth more in shaky economy.

5. Do your own appraisal

One of the biggest dangers you may encounter with appraisals in this market is your own unrealistic estimation of a home’s value. Do a little of your own research and listen to your real estate agent or mortgage broker. What home value do you really think an unbiased appraiser will return? Should you be writing up this deal at this price?

Your appraisal is a critical component to the success of your mortgage refinance or buying a new home. Make sure that you know how to maximize your chances of get the right value for your home.

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