HVCC: The Comp Check Killer
In a recent blog post, “Comp Check: The Code Red of Real Estate Appraisal,” we discussed the dubious practice of comp checks, and promised a future blog with an overview of new laws that were enacted to prevent comp checks. The future is now.
Just a short recap: A comp check is something a lender requests of a real estate appraiser. It’s essentially an undocumented, unofficial examination of properties similar to one that’s on the market. If the comp check matches the price range the lender was hoping for, the appraisal goes through official channels. If not, the matter is dropped and the appraiser gets nothing. Except the promise of future work from the lender.
So what’s been done to put a halt to this unethical practice? The passage of the Home Valuation Code of Conduct (HVCC). Almost a year ago, New York Attorney General Andrew Cuomo announced an agreement with Fannie Mae and Freddie Mac to establish the HVCC. Right out of the gate, the HVCC reads, in part:
“No employee, director, officer, or agent of the lender … shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery, or in any other manner … “
This would appear to be nothing but good news for appraisers. Well, yes and no. HVCC seems to have caught lenders off guard; many are unsure how to be HVCC-compliant. This is driving lenders to stop using independent appraisers and start using appraisal management companies (AMCs). Some lenders even believe that HVCC requires them to. But this means that most independent appraisers are being punished for the actions of a select few. And anyway, using an AMC doesn’t guarantee HVCC compliance – a great number of AMC appraisers either were or will be independent appraisers.
So does the passing of HVCC mean that comp checks are a thing of the past? Of course not. Speeding is against the law. Will everyone drive the speed limit? The one thing HVCC will do is make this gray area a little less so. Lenders who attempt to have comp checks done will now be in violation of HVCC, so they’ll likely think twice about asking for them.
By: Present Value