4. Independent Home Appraisers

Until recently, mortgage lenders and real estate brokers handpicked home appraisers – who would then issue an estimated value of a home typically after a buyer made an offer.

But in May, the Home Valuation Code of Conduct (HVCC), which is aimed at reducing instances of home appraisal fraud, was put in place by the government. This lending guideline requires that a large appraisal management company send an appraiser to determine the value of the home, says Gibran Nicholas, chairman of the Ann Arbor, Mich.-based CMPS Institute, which trains and certifies mortgage lenders and brokers. In the past, realtors and mortgage lenders pressured appraisers to set the value of the home at the same level as the purchase price, says Nicholas.

While HVCC eliminates such shady dealings, it poses a new problem: If the appraisal comes in below the buyer’s offer price, the mortgage lender will lower the amount on the mortgage to reflect the appraisal price. That could put the buyer in a big financial bind. Once a bid is on the table it's difficult to retract it. So if the bid outweighs the mortgage amount, the buyer will be on the hook for the difference. And should the buyer decide to walk away from the deal, they risk losing their earnest money deposit (a portion of the down payment).

Before making an offer, buyers should include an agreement in the contract that they won’t be required to pay any extra amounts that may result from an appraisal and/or they reserve the right to get a second opinion from another HVCC-qualifying company. Also, they should include a stipulation that says their earnest money deposit will be refundable.

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