December 9, 2011 (Chris Moore)
One out of three home builders reported losing the sale of a brand new home in the last six months because the appraisal was less than the selling price of the home according to the National Association of Home Builders (NAHB).
According to the nationwide study conducted by NAHB, appraisals of brand new homes are being compared to distressed properties in the effected areas, many sitting vacant and in disrepair, resulting in an appraisal that in many cases is less than the cost of construction on the new home.
Sixty percent of the builders who responded to the survey reported they had experienced appraisals that were below their contract sales price. Of the builders who had encountered a faulty appraisal, 53 percent said the amount that the new home was appraised for was actually less than the cost of construction
“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,” said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.
NAHB, along with its partners in the appraisal industry, housing finance industry, and the real estate and housing sectors has held four appraisal summits with bank regulators in Washington to find solutions and develop realistic valuations based on sales that are truly comparable.
“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.”
NAHB believes the faulty appraisal practices threatens to prolong the current housing downturn as falling appraised values for land and subdivions has resulted in financial institutions refusing to lend to developers and builders or to demand additional equity or call performing loans.
“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,” Nielsen added.
Tags: NAHB, appraisals, home builders, new homes, faulty appraisals, distressed properties, contract sales price, lenders