Mortgages Explained: Why can’t I order my own appraisal?

by Mortgage Nerd on February 24, 2011 · 1 comment

Before May 1st, 2009 there weren’t any rules about who could order the appraisal for a home purchase or refinance transaction. Also, before that date loan officers could talk and consult with an appraiser about the value of a property. Well that all changed on May 1st, 2009 with a new law called the Home Valuation Code of Conduct (HVCC for short)

The HVCC came about because the government felt that there were too many loan officers inappropriately manipulating appraisers (bribing, intimidating, etc.) to appraise properties for more than they were worth, so that the transaction would go through.

For example, a dishonest loan officer might tell a certain appraiser that they will never do business with that appraiser again if they don’t appraise a certain property for $200,000, when in reality it would only appraise for $180,000 but the borrowers wouldn’t be able to refinance if it only appraised for 180k. This is a fairly tame example of corruption as there have been many cases of loan officers actually bribing appraisers to value properties for hundreds of thousands of dollars over their actual value (See Provo River Bottoms loan fraud case)There have even been cases of appraisers submitting appraisals for homes that didn’t even exist. Shocking I know.

The sad part is that there were enough dishonest loan officers that were doing this that is significantly contributed to the over inflated prices of homes. And we all know what happened as a result of over-inflated home values.

So we can all thank those unscrupulous loan officers for the HVCC, which now prohibits loan officers from having any direct communication with the appraiser. It also means that borrowers can’t choose their appraiser either.

The way it works now is that the loan officer orders the appraisal from a third part appraisal management company who assigns the appraisal to an appraiser within the area (ideally within 50 miles). The loan officer doesn’t even know who the appraiser is until the report is delivered via email from the appraisal management company. Even after it is delivered, the loan officer is to direct all questions about the appraisal to the AMC (appraisal management company), who will forward the message on to the appraiser.

As you can imagine, the HVCC has led to higher costs for borrowers because somebody has to pay for the work of the appraisal management company. Appraisals now range in price from $400 to $550. The good news however is that everyone can rest assured that the appraisals are done without manipulation from any outside sources. Or does the appraisal management company now manipulate their appraisers?

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