Builders Raise Own Appraisal Concerns

Appraisal practices have ""taken center stage"":http://dsnews.comindex.php/home/news_story/3168 lately with the roll out of the new Home Valuation Code of Conduct (HVCC) by the GSEs. And now, the ""National Association of Home Builders"":http://www.nahb.org (NAHB) has raised its own concerns over valuations of foreclosures, REOs, and short sales.
NAHB says federal regulators need to write new guidelines for appraising distressed properties. The association claims that appraisers are using foreclosed and distressed sales as comparables with appraisals on newly constructed homes without adequately reflecting the differences in property conditions, driving down new home values.
NAHB Chairman Joe Robson, a home builder from Tulsa, Oklahoma, said, ""Any homebuyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained. So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables.""
NAHB points out that appraisers are often only required to conduct exterior inspections of properties that are being used as comparables because they are unable to enter these homes and examine their interiors. Too often, the association says, properties that have been subject to foreclosure or distressed sales have issues related to deferred maintenance or internal damage that an external inspection simply cannot reveal.
Robson says there need to be proper regulatory guidelines for those who use distressed or foreclosed properties as comparables when determining home values. ""It is essential that appraisers have the proper experience and guidance to accurately assess values in distressed markets,"" Robson said.
He added that in neighborhoods where comps include a large number of short sales or foreclosures, appraisers should have the option of expanding the geographic area or extending the time frame for eligible sales to get a more representative pictue of the value of homes sold in the area. Robson says improper or insufficient adjustments to the comparable values of foreclosed and distressed homes often results in the undervaluation of new sales transactions.
""This practice must be corrected because it contributes to the continuing downward spiral in home prices, forestalling the economic recovery,"" Robson said.