Builders Say Appraisals "Killing Sales"

by devteam December 9th, 2011 | Share

The National Association of HomernBuilders (NAHB) reports that one out of every three of its builder members hasrnlost a sale during the last six months because of home values reported byrnappraisers.  Appraisals are coming in at levelsrnthat do not support the sales price, fatally skewing the loan-to-value (LTV)rnratios required for the buyers’ mortgages.</p

NAHB Chairman Bob Nielson said, “Therninappropriate use of distressed and foreclosed sales as comparables inrndetermining new home values is needlessly driving down home prices, killingrnhome sales, causing more workers to lose their jobs and delaying a housing andrneconomic recovery.” </p

According to the Association, appraisersrnare using “faulty” practices, comparing “brand new homes with sparklingrnappliances and interior upgrades” to distressed properties that have beenrnsitting vacant and deteriorating.  Inrnmany cases the result is an appraisal that values the house less than the costrnof its construction.</p

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

“This is not only unfair andrnunreasonable,” Nielsen said, “but it perpetuates the cycle of declining homernvalues, drives more home owners underwater, harms local economic activity andrnacts as an obstacle to the recovery of the housing market.”<br /<br /Nielsen referenced these appraisal practices and the resulting values as arnmajor reason that builders are encountering a credit crisis that is hobbling acquisition,rndevelopment, and construction.  Lendersrnhave tightened restrictions on these AD&C loans to developers and builders,rnsometimes not lending at all or demanding additional equity when they do.  There have also been instances of lendersrncalling performing AD&C loans.  Thernlack of credit threatens to prolong the current housing downturn according tornthe Association.  </p<pNAHB said it has heldrnfour appraisal summits in the last two years, the most recent on October 19,rnwith federal banking regulators and representatives from the appraisal andrnhousing finance industries, and the real estate and housing sectors in anrnattempt to find solutions to the problem of developing realistic valuationsrnbased on appropriate comparables.  According to NAHB, "With the decline in homernprices appearing to have ended or be coming to an end in most parts of therncountry, resolving the appraisal and credit crunch issues remain a top priorityrnfor the association"<br /<br /"Major reforms in appraisal practices and oversight are needed to ensurernthat appraisals accurately reflect true market values and don’t contribute tornprice volatility or harm aspiring home owners and move-up buyers,” Nielsenrnsaid. “We will continue to work with all stakeholders in this debate tornfind solutions.”

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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