Home Valuation Code of Conduct

The Home Valuation Code of Conduct (the HVCC) offers a set of rules for the most ethical manner in which mortgage lenders (such as banks) are able to act when they commission the appraisal of a property. The actual HVCC is an industry agreement which was negotiated and accepted between the Fannie Mae , Freddie Mac and New York state and was ultimately implemented in the Dodd-Frank Act . Home valuation codes of ethics is now a national issue of contention, but there are a few important points which you need to make sure are upheld by your lender to make sure you receive a fair deal on your property.

The basic principal of the regulation is to prevent any individual who has a potential financial benefit from having any direct contact whether that be via phone, email, in person, etc with the appraiser. This is to eliminate any “leaning” or “suggested valuation” and to keep the appraisal process as pure as can be. In theory this is a very good concept that uses a middle man called an Appraisal Management Company to act as a go between the appraiser and lender and all of their employees (brokers, processors, etc).

Some of the problems with the HVCC from a consumer stand point is that the appraiser is not hired by your lender or by you and therefore does not have any incentive to perform well. The appraisers in general are making so much smaller a piece of the pie then in years past they have lost that motivation to work the extra mile for the clients. A client also does not have the insight to not go through with an appraisal until they have paid for it, even if the appraiser knew prior to doing the appraisal that the requested value was not even close to actual value.

On the upside, you will be protected knowing you are not paying too much for a property as influence and sales price are left out of the appraisal equation in terms of value. Appraisals have become under much scrutiny because of the bank owned sales, foreclosures, and short sales that are lowering values of all neighborhoods. Hopefully some of the regulation will unwind and a better formula will arise to create true value and get our real estate markets back on track.