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

Tags: AMC, comp checks, HVCC
Posted in Uncategorized | 4 Comments »

Comp Check: The Code Red of Real Estate Appraisal

How can laws be enacted to govern a practice that both does and doesn’t exist? Comp checks exist; anyone in the real estate appraisal business can tell you that. And yet comp checks do not exist because in the strictest sense, they’re not legal. How did this unusual gray area creep into the real estate appraisal business? What’s being done about it? And what exactly is a comp check anyway? Read on …

Someone purchasing a house will typically go to some sort of lender. In order to structure the proper loan for the potential home buyer, the lender needs to know the correct value of the property. The lender contacts the real estate appraiser and orders an appraisal, and structures the loan around the property’s value. So far, so good.

But sometimes the lender can only structure a loan if the property’s value falls within a certain range, say $400,000 to $500,000. Some of these lenders will contact an appraiser and ask for a “comp check.” To do a comp check, the appraiser logs into a real estate database and checks the sale prices of similar homes in the area of the property in question. The appraiser then contacts the lender and informs them of the price range. If the price range is not what the lender was looking for, the lender won’t bother with the expense of having the actual appraisal done.

As if that area were not gray enough, the appraiser who does the comp check doesn’t get compensated for it. So why in the world would an appraiser do a comp check in the first place? Generally, there’s an unspoken understanding that if the appraiser does the comp checks, the lender will send the bulk of their actual appraisal orders to that appraiser. Gray areas indeed.

Recent laws and updated codes of conduct have been enacted to eliminate the practice of comp checks-though not directly because, remember, they don’t exist. We’ll address those new laws in a future blog. But the takeaway is that if you’re going to have an appraisal done, do some research to make sure you’re dealing with an honest, experienced, ethical real estate appraiser. Something like a comp check won’t affect you directly, but it’s nothing you want anything to do with.

By: Present Value

Tags: comp checks, home appraisal, house appraisal, house values, purchase home, refinance loan
Posted in Appraisal Terms, Real Estate Appraisal | No Comments »