Chicago area real estate contract live or die depending on the results of mortgage lender appraisal reports. If the property value does not justify the loan, the contract is going nowhere.
As the market defalted over the last two years, many of my clients saw contracts collapse based on low appraisals.
A great many Chicago area Realtors, bloggers and other real estate pundits were quick to place blame for low property valuations on the Home Valuation Code of Conduct that became effective this past May. Frankly, the low appraisals were already a problem long before HVCC went into effect. For all the uproar, I am seeing a rather interesting (positive) trend of late. More on that in a moment. First a quick recap.
The HVCC is not so much law, as it is the result of an agreed settlement entered into by Fannie Mae, Freddie Mac, and the office of the New York State Attorney General.
The idea was to stem the tide of appraisal fraud and abuse by changing the way that lenders select their mortgage appraisers. Rather than rely on appraisers who were "friendly" or beholden to the brokers that hired them to "get" the right valuations, lenders must now assign appraisers using staff that have nothing to do with the loan production.
The Code has been pretty roundly criticized, perhaps even justifiably, as lenders began to employ third-party appraisal management companies to select appraisers. AMCs are middlemen. They receive appraisal requests from lenders and then assign them to an appraiser from a list of approved vendors who agreed to take assignments. Not everyone on the list is necessarily familiar with the localities they are assigned to work in. By design, it is harder for loan brokers or real estate agents to influence the valuations (for good or for bad).
So, how are things working out under the new system?
Curiously, I am seeing many more appraisals coming in significantly higher than the contract purchase prices. Really, truly, honestly. Significantly higher. Today, I saw a reported valuation 50% over the contract price. Valued fully $100,000 over what the seller agreed to sell for. Only one contract all month that came in below the contract price, and we quickly and easily negotiated an appropriate price reduction for our buyer.
Is this the result of a strengthening marketplace? Is this a positive effect of the HVCC? Hard to say at this point.
One way or another, it sure seems to bode well for my buyer-clients. Listing agents may want to hold just a little bit firmer on their asking prices too.
Anyone else having similar experiences?