Since When Are Appraisal Conflicts Okay?

On RealTalk, a listserve with some 30,000+ agents and brokers, several relate that they have had bad experiences under the new Home Valuation Code of Conduct (HVCC) concept, something which only began May 1st.

Why is anyone amazed? Combine a new and different program with a huge number of interactions and there are certain to be bumps in the road.

That said, why don’t we get to the core issue? Is it really a good idea for bankers, brokerages, lenders and builders to have captive appraisers? If not, what are we going to do about it?

Any Conflicts Here?

Let’s imagine this situation: Smith is a buyer broker. Smith has an agency obligation to his client. A home is found. The deal is funded by the lending affiliate of Smith’s broker. The lending affiliate has a record for pressuring appraisers — remember that 11,000 appraisers signed an online petition saying that they had encountered pressure to come up with a “right” price, so such pressure is not unknown. After closing, the purchasers come down with buyer’s remorse. They feel they over-paid for the property. They’re attorney connects the dots — a pressured appraiser produces the “right” valuation, which allows the broker’s lender to justify the funding of the property, which permits the broker to collect a commission, the lender to get a fee, buyer broker Smith to get paid and the buyer to get screwed. All get sued.

Not a plausible claim? No conflicts of interest, real or imagined? Want to test this idea in court?

The point is not that the HVCC is perfect or can be perfect, but then that was not the standard we used previously. Instead, the idea is that we should try to make the marketplace better and more transparent to assure that purchasers do not overpay, lenders do not lend more than they should and mortgage investors do not overvalue mortgage-backed securities. Gross and overt conflicts should not be applauded merely because they’re faster, more convenient and long allowed.

We need independent appraisers and by independent I mean appraisers who are licensed, qualified, local and not pressured into coming up with the “right” valuation to keep their jobs and their livelihoods.

Suspend the HVCC

There is now an effort to “suspend” the HVCC for 18 months, after which there will no doubt be more pressure for additional suspensions. If this comes about, ask yourself if borrowers and mortgage investors benefit. If not, who does? And if we tilt the system so that buyers and mortgage investors feel less comfortable than they should, then who will buy real estate and who will fund mortgages?

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