The Home Valuation Code of Conduct (HVCC) went into effect May 1, 2009 for all 1-4 unit and single family conventional mortgages sold to Fannie Mae. The purpose of the new HVCC appraisal process is to establish an arms-length transaction between the appraiser and loan officer/real estate agent and to avoid fraud. Through the HVCC process, all appraisals are ordered through a third party agency who assigns an appraiser. The loan officer no longer is able use a personal appraiser. Our office has had many sales transactions delayed due to this process.
The purpose of an appraisal is to protect the lender to make sure there is enough collateral in the property being purchased by the buyer. Unfortunately, many appraisers are going into depth regarding the condition of the property instead of simply providing a value of the property. Cosmetic and minor repair issues are leading to appraisal problems and closing delays.
We closed several investment property transactions with appraisal problems this year. An appraiser noted a missing gas meter in the appraisal report. We discovered the previous tenant who occupied the property had not paid their gas bill in months. Hence the gas company removed the meter. The tenant lived in the home for 4-5 months without gas. It was almost six months by the time we ordered the appraisal. The gas company required the city to inspect the gas line, and the city required a plumber to test the line, order a permit, and meet with city inspector. After paying the plumber, city permit, and a $135 appraiser second visit, we were able to close 10 days later.
In a recent transaction, the appraisal was approved by the underwriter within 24 hours of receipt. Two weeks later when we uploaded final conditions, the underwriter added a new condition for the appraisal. The appraiser noted minor wood rot on the trim at the bottom of the front porch pole. Our handy man repaired the poles the next day, and the borrower paid for a follow-up appraisal visit to take pictures of the repaired pole trim. Because this was a last minute change, the borrower lost the lock and we had to delay the closing. The materials costs were less than $25.
We are currently working on a HUD foreclosure transaction. The appraiser noted home was in fair condition due to stained carpet and a missing range. Fannie Mae will not purchase a home that is appraised in “fair” condition or is uninhabitable. The missing range makes the home uninhabitable. Appliances are required to be in a home to be habitable. Because a HUD property is sold “as is,” the seller will not make any repairs. Many lenders will not allow an escrow hold back and setup funds at closing for repairs. We are trying to get the appraiser to change the comments in his report.
In summary, be cautious when purchasing real estate especially investment property. Make sure subject property has utilities turned on and is in good shape. Be prepared to address any minor cosmetic issues and repairs reported in appraisal report and allow enough time to complete necessary repairs when locking in your mortgage interest rate.