The Tricky Process of Determining Home Value

5 things you need to know about how appraisals are done

By Geoff Williams, FrontDoor.com | Published: 8/05/2009

Appraisals are an important part of the home buying and selling process, but new federal guidelines have made them more complicated.

Or at least, everyone used to get through it. Ever since some new federal guidelines for appraising a house were made law on May 1, 2009, there are a lot of houses that aren't being sold, apparently due to the ever-changing, maddeningly-frustrating appraisal process. So with that in mind, if you're going to buy or sell a house and haven't gone through the appraisal process for awhile, here's what you should know.

#1: Appraisals are taking longer than they used to.

Think a couple weeks, not days. That's because, after the subprime debacle and financial meltdown last year, the federal government decided something needed to be done, and one of the mechanisms in house buying that was examined was how an appraisal is done.

It used to be that mortgage brokers hired their own appraisers to determine the value of the house. The federal government decided that that arrangement was a little too cozy and convenient -- after all, if you're an appraiser, and the person cutting your paycheck tells you that these sellers are selling their house for $700,000, you're going to know that if you tell them it's actually worth $500,000, and you do this repeatedly, theoretically, you're probably not going to be hired again.

That was the thinking behind the new federal guidelines called the Home Valuation Code of Conduct (often referred to as the HVCC), a set of rules that became law on May 1, 2009 and now determine how appraisals should be made. It's a lengthy maze of rules, which people in the industry are still trying to decode, but one of the main changes to the process is that your mortgage company can't hire its own appraiser.

An independent third party, an appraisal management company (AMC), has to be brought in, although even that's a topic ripe for misunderstanding. The Federal Home Finance Agency recently put out a statement saying that "the Code does not favor the use of AMCs over independent or in-house appraisers. Significantly, for the first time, the Code places the same requirements for appraiser independence on AMCs as the limits placed on lenders."

In any case, third party appraisal management companies have been increasingly involved in the appraisal process, and many in the real estate industry aren't happy about it. In part, that's because bringing in the third party, or adding this layer of independence onto independent and in-house appraisers, is adding time to the process.

Lance Kirshner, a licensed real estate appraiser for the last four years and a licensed Realtor for the last five, is one of the many critics of these new guidelines. Kirshner, who works at Mountain Residential Appraisals, Inc., a residential and commercial valuation company that's been around since 1995 and has two offices in the Chicago area, says that whereas an appraisal used to take a week tops, he is seeing it stretch out for 20 days.

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