HVCC & Appraisal Myths

Posted by Van Purser on Wednesday, May 12th, 2010 at 11:33am.

I am writing this month’s article on the misconceptions of Real Estate Agents, homeowners and buyers about the Home Valuation Code of Conduct (HVCC).

Some background:  The Code was established to stop the practice of lenders, borrowers and brokers putting pressure on the appraiser to “hit a number” and possibly inflate an appraisal, so that a deal (loan) could close.  Pressure to make a deal work with threats of being “removed from the list” and effectively losing valuable compensation and clients for the appraiser and his family, forced certain appraisers to overlook the ethical boundaries established.  This expansion of approved appraisal parameters may have resulted in using properties that were not comparable, were not in the market area and could have the result of having inflated values anywhere from a couple of thousand dollars to several hundred thousands of dollars overvalued.  This was certainly one of the many factors contributing to the current declining real estate market.

Recently, I have had several agents and homeowners ask me how the HVCC is going to affect their appraisal. The answer to this question is simple, it doesn’t. The HVCC in no way affects how an appraisal is completed. In a nutshell, the HVCC Code pertains only to how an appraiser is chosen by lenders and the influences on the appraiser. The Code has nothing to do with how the appraiser arrives at a value for the property in question.   An opinion of value is arrived by applying accepted appraisal guidelines established by Fannie Mae, Freddie Mac, FHA, USPAP, and local and state agencies.

Some areas of our city have seen increasing inventories, longer days on market and declining sales prices.   Unfortunately, all these factors can point to lower opinions of value from currently obtained appraisals.  Is this a factor of the HVCC?  NO!

The real question here should be:  How did the homeowner and/or Real Estate Agent arrive at the listing/sales price of the home and what should one look for in establishing that value?

Current appraisal requirements—secondary markets:  Due to the current state of the real estate market, the lenders, Fannie Mae, Freddie Mac and FHA have all tightened their appraisal underwriting requirements.   While there are multitudes of items that must be considered, some criteria have been updated to further give underwriters an understanding of current market conditions.

In the past,  use of comparable sales up to 1-year-old were allowed; now the requirements have been reduced to the past 3 to 6 months from the date of the appraisal.  The 3 month time period is the preferred number but they will allow 1 or 2 comparables to exceed this time period “provided” at least 2 of the comparables used are in the 3 month period.  The feeling here is that newer sales give the underwriters a better “view” for the current market for that particular property. 

Also, additional analysis is required to further define and illustrate increasing, stable and decreasing markets.  Additional listings to further support value are required in instances of noted declining markets.

State of Georgia law:  Beginning in 2006, the State of Georgia enacted a law that forbids going outside the subject neighborhood if comparable properties exist within the neighborhood.  Also, foreclosure activity must be analyzed and reported as to the impact to the marketing area.

As we all know the real estate market has taken a large downturn over the past couple of years.  It is challenging for any appraiser to accurately give an opinion of value in markets facing sharply dropping prices and increases in foreclosure activity.  We must not expand the parameters of the search to find comparable property values just to satisfy the homeowner and/or lender.

So the question now is: how do I know what the value of my home is currently?

For starters, when you are trying to establish a price for your home, make sure that the SALES (not listings) you are looking at, whether they are in a CMA performed by an agent or from your own research, all come from your neighborhood (if possible) and are current sales (less than 6 months old, preferably 3 months).  If your home is a 5-year-old, 2 story on a basement, only look at 5-year-old 2 stories on a basement.  If the home is a ranch on a slab/crawl space, look at ranches on a slab/crawl space.  I realize this is a very simplistic way of looking at it but it works, as this is how most appraisers start their comparable sales search.  Remember that the appraiser can and will make adjustments, up and/or down, for different features your home has and/or doesn’t have over the comparable properties.

Home additions and/or improvements:  Please also realize that a feature that you truly love and desire and have paid much money for may not always be recouped in the market value of the home.  Let’s say you have a pool and you paid $25,000 for it. In the Atlanta market, a pool would only add value to your home in the $5,000 to $10,000 range and not the full $25,000 you paid for it.  This is different from other markets, say parts of Florida, Arizona, etc. where a pool could add value over and above the $25,000 paid.

Another misconception is that a new roof, new HVAC system, etc. adds value.  While it may add some value (small at best), most buyers feel that the home should have a roof that is not leaking and an HVAC system that is working.  The real value here is that it will probably shorten the time frame it takes to get your home sold, therefore, creating marketability.

Another way to arrive at your home’s value is to get a pre-listing appraisal.  The appraisal will give the homeowner a realistic idea of the home’s value and also what is happening in the market the home is located within.  It will also give the homeowner an idea of how foreclosure properties are affecting the value and the range of values in a particular neighborhood for the property type in question.

In conclusion, it is not the HVCC but rather the market that is affecting value.  The underwriting guidelines that appraisers have to follow do not affect value either but rather give the underwriter, the homeowner, the real estate agent and the appraiser a realistic view of the current value for your home.


Van Purser and his wife Jeanne are a licensed Real Estate Brokers in Georgia.  Since1984 they successfully purchased and renovated over 400 homes.  Their expertise is in representing Buyers or Sellers as an advocate; which means always ensuring their best interest.  Additionally, they represented hundreds of clients over the years as an Associate Broker with Metro Brokers, RE/Max and now with his own firm.  He and his wife, Jeanne, have been married since 1977.   Van or Jeanne can be reached at 770-623-3313, or by email at vanpurser@vanpurser.com or jeanne@vanpurser.com

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