Buyers Lose Offers, Pay More Thanks to New HVCC Appraisal Rules

The new Home Valuation Code of Conduct (HVCC) rules that went into effect May 1, 2009 were supposed to protect consumers purchasing and refinancing homes by eliminating fraud and inflated appraisals. But the new appraisal rules are having a completely different and negative effect. They have made buying real estate harder and more expensive for home buyers. And it’s not only buyers getting hurt – it’s sellers, appraisers, real estate agents and lenders.

I’m not going to go into detail as to how the new process works here on this post. For a great explanation of that, check out Chris Griffith’s post entitled, “The HVCC Wal-Mart Effect”.

What I am going to discuss is how buying and selling real estate has changed since the new rules went into effect. Let’s take a look at real life examples involving either my or fellow agent’s clients…

Real life example #1: Appraisals are coming in low. And sometimes ridiculously low. Buyers who don’t have a hidden stash of thousands of dollars to make up the difference between the appraised value and purchase price are left to try and convince the seller to lower their purchase price. Any seller and their listing agent who knows the local real estate market and values will know that the appraisal is not accurate and tell the buyer to take a hike (in this market, there’s another ready, willing and able buyer nearby).

This just cost the buyer the chance to buy a home they love and they have to start back at square one. The seller has to go back on market in order to avoid losing thousands of dollars thanks to an inaccurate appraisal.

Real life example #2: Many Listing Agents and sellers no longer want to see FHA or VA financing on an offer. They’re either taking lower offers that are doing conventional financing or flat out saying, “No FHA or VA financing.”

Buyers with FHA or VHA financing are getting their offers rejected or can’t even submit an offer on many properties.

Real life example #3: Based on the average time from contract to settlement date (30 to 45 days), buyers are locking in their interest rates, setting up movers, contractors, turning in notices to their landlords, terminating leases, etc. As little as only 1 week before settlement date, the appraisal is nowhere to be found. Sometimes, not even the appraiser is anywhere to be found. Either the appraiser has to be hunted down or another appraisal has to be ordered. Either way, settlement is delayed.

To the buyer, this could lead to their rate lock expiring and their interest rate becomes higher than at the time of contract. It could also mean that they now have to pay a penalty for rescheduling movers, contractors, the lease termination date, etc. And even worse, it could mean that the buyer is in default of the contract – this could lead to a $100 per day penalty and/or loss of earnest money deposit.

Real life example #4: Appraisal fees were an average of $300 to $350. Now they’re an average of $400 to $500.

Who pays the appraisal fee? The buyer.

Real life example #5: A mortgage broker goes with lender “A” for the buyer’s financing only to find out that lender “B” has a lower interest rate and lower closing costs. Rather than lender “B” being able to use the completed appraisal from lender “A,” lender “B” has to order a new appraisal costing the buyer another appraisal fee.

The buyer has to pay another $400 to $450 for the second appraisal.

These are just some of the real life examples of what’s going on out there. As long as the HVCC stays in effect, home buyers will continue to pay more money for crappier service and, in many cases, their chances of getting their offer accepted will continue to be diminished. Not only is the HVCC screwing the transaction up for buyers and sellers, the new HVCC rules could be the single largest hurdle to US home price recovery.

The HVCC needs to be rescinded or changed – ASAP!

Mortgage Rate Update: 4 Year Lows, Cheaper for Buyers than Refi’s

The 30-year fixed-rate mortgage rate averaged 5.47 percent with an average 0.7 point for the week ending December 11, down from 5.53 percent last week and 6.11 percent a year ago. The rate hasn't been lower since March 25, 2004, when it averaged 5.4 percent. Great news, right?

It definitely is if you're a home buyer. But you may not be as pleasantly surprised if you're trying to refinance.

Why  is that? Because rates on refi's are higher than those for home buyers, even if you have substantial equity in your home and great credit. That means that your new neighbor who just moved in got a 5.5 percent rate while you were offered between 5.75 and 6.0 percent for your refi.

"Absurd!" Perhaps. But it's the reality of the times. There's a good post over at Bloodhound Blog that touches upon some of the reasons, which include the fact that lenders hate refi's due to their "nebulous valuations".

And think about it…those who are able to refinance already have equity built into their homes (you have to in order to refi) and are probably in a better financial situation when it comes to their home than those who can't refinance due to being "upside down". The people in the better financial situation are not the ones that the lenders or the Feds are worried about.

Lenders and the Feds are worried about those who are in financial turmoil and can't refi nor sell their house for more than what they owe on it. And they care about getting "fresh" loans and money out to home buyers in order to lower the inventory, keep the lenders afloat and stimulate the housing market and overall economy.

In order to to do that, they're sweetening the deal to home buyers, not those who are financially stable and have equity in their homes.

Unfair? If you're someone who has great credit, equity in your home and just wants to save a few bucks every month to put into savings to spend on goods/services (all of which help you and the overall economy), you're probably saying,

"Yes! Why should I have to pay a higher rate than someone who can only put 3% down and has worse credit than me?!"

But, if you're someone who wasn't able to buy until recently due to "inflated" home prices or higher rates, you may be saying,

"No, it's not unfair! It's about time I'm able to buy something! I, too, will someday have equity in my home, savings in the bank and be in the same position as my well-off neighbor, which will help the overall economy down the road."

There's two sides to every argument and I'm not here to judge whether one is right or wrong. I'm here to pass on the information, offer some personal insight as to the reasons and let you come to your own conclusion. But, whatever your stance is, get used to seeing a difference between home buyer rates and refi rates because many are saying that this pattern will continue through 2009.