The lender will require an appraisal from a licensed, independent third party to confirm a home’s value, before it will approve the mortgage.
Licensed appraisers must abide by the Home Valuation Code of Conduct, which was created in 2009, in the wake of the mortgage crisis, to create an arm’s-length relationship between lenders and appraisers. Conventional loans backed by Fannie Mae and Freddie Mac are covered, as are those insured by the Federal Housing Authority (FHA).
According to the HVCC, lenders can no longer directly communicate with appraisers. The rules have created a cottage industry of third-party appraisal-management companies. Banks contact the management companies, who then assign an appraiser to the order.
As is often the case when government intervenes in the free market, the HVCC has created unintended (we assume) side effects:
- Appraisals cost consumers more: Government created the necessity for another layer of bureaucracy, and consumers now pay for it. An appraisal that used to cost about $250 now ranges from $350 to $500 on average homes in California.
- Appraisers earn less: In addition to the extra costs from consumers, appraisal-management companies pay the appraisers who actually do the work less than the original, smaller fees.
- Appraisals take longer: The appraisal reports have to go across more desks and therefore can delay transactions by days.
- Appraiser experience diminishing: Long-time appraisers are leaving the business because their income ability has been dramatically cut back. And newby appraisers are stepping in to fill the gaps.
- Lack of Knowledge: Appraisers are travelling long distance to appraise properties in neighborhoods that they know little about. That is contributing to low appraisals, which can cause deal cancellations.
Appraisals typically take a week to order, perform and come back to the lender. That timeframe is still well within the average buyer’s initial contingency and inspection periods. Lenders cannot submit a buyer’s final loan package for approval until it contains the appraisal.
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illustration courtesy of ddpavumba | freedigitalphotos.net
What is a Home Appraisal | Buying a Home in Riverside CA | Selling a Home in Riverside CA | Brian Bean and Tim Hardin Dream Big Realty ONE Group