Builders Say Appraisals "Killing Sales"


The National Association of Home
Builders (NAHB) reports that one out of every three of its builder members has
lost a sale
during the last six months because of home values reported by
appraisers.  Appraisals are coming in at levels
that do not support the sales price, fatally skewing the loan-to-value (LTV)
ratios required for the buyers’ mortgages.

NAHB Chairman Bob Nielson said, “The
inappropriate use of distressed and foreclosed sales as comparables in
determining new home values is needlessly driving down home prices, killing
home sales, causing more workers to lose their jobs and delaying a housing and
economic recovery.”

According to the Association, appraisers
are using “faulty” practices
, comparing “brand new homes with sparkling
appliances and interior upgrades” to distressed properties that have been
sitting vacant and deteriorating.  In
many cases the result is an appraisal that values the house less than the cost
of its construction.

Nielsen said a full 60 percent of
builders responding to a recent NAHB survey on the issue said that their buyers
had received appraisals that came in below the contract sales price.  More than half of those respondents (53
percent) said that the appraised value was less than the cost of building the

“This is not only unfair and
unreasonable,” Nielsen said, “but it perpetuates the cycle of declining home
values, drives more home owners underwater, harms local economic activity and
acts as an obstacle to the recovery of the housing market.”

Nielsen referenced these appraisal practices and the resulting values as a
major reason that builders are encountering a credit crisis that is hobbling acquisition,
development, and construction.  Lenders
have tightened restrictions on these ADC loans to developers and builders,
sometimes not lending at all or demanding additional equity when they do.  There have also been instances of lenders
calling performing ADC loans.  The
lack of credit threatens to prolong the current housing downturn according to
the Association. 

NAHB said it has held
four appraisal summits in the last two years, the most recent on October 19,
with federal banking regulators and representatives from the appraisal and
housing finance industries, and the real estate and housing sectors in an
attempt to find solutions to the problem of developing realistic valuations
based on appropriate comparables.  According to NAHB, “With the decline in home
prices appearing to have ended or be coming to an end in most parts of the
country, resolving the appraisal and credit crunch issues remain a top priority
for the association”

Major reforms in appraisal practices and oversight are needed to ensure
that appraisals accurately reflect true market values and don’t contribute to
price volatility or harm aspiring home owners and move-up buyers,” Nielsen
said. “We will continue to work with all stakeholders in this debate to
find solutions.”

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