At the close of the summer, appraisals were a hot topic, with builders and Realtors alike criticizing the shoddy documentation and lackluster criteria that often defined the appraisal experience.
Though news about government assistance and foreclosures quickly overtook appraisals, a new survey by the National Association of Home Builders suggests that appraisals are just as much of a deal breaker now as they were then.
According to the survey, one of three builders reported losing a signed sales contract in the last six months because of an appraisal.
Bob Nielsen, the chairman of the NAHB, said the lost contracts are a result of how appraisals are conducted.
“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,” Nielsen said.
So new homes, with stainless steel appliances, interior upgrades and other amenities, are compared in their appraisals to a distressed property that has been vacant for years and in disarray. The value drops, as a result, and the contract is lost.
And even if the contract is not lost, declines in value are occurring for a majority of builders. 60 percent of those surveyed by the NAHB reported that appraisals were coming in below their contract sales prices, and 53 percent said the appraisal was even lower than the cost of building the home.
“This is not only unfair and unreasonable, 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,” said Nielsen.
To address the appraisal “crisis,” as the NAHB labels it, the organization has hosted four appraisal summits in Washington the last two years, all featuring representatives from banking, housing finance, real estate and appraising to find solutions to the problem. The most recent summit took place Oct. 19.
Nielsen said the NAHB is committed to reforming the appraisal process, and he guaranteed further action from the organization.
“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,” said Nielsen. “We will continue to work with all stakeholders in this debate to find solutions.”