In recent months residential appraisers have come under fire from the NAHB regarding the appraisals of new construction. The NAHB claims faulty residential appraisal practices is causing builders to lose customer signed contracts due to the estimated market value stated on the appraisal are falling short of the contract price. The NAHB has stated that "flawed appraisals are killing home sales and hampering the housing recovery".
The NAHB points to the use of "inappropriate" distressed and foreclosed sales as the major fault in the appraisal process. In today's market place there are few, if any, market areas that have not been affected by the distressed residential market conditions. Appraisers are required to consider and possibly use distressed homes sales in the estimate of market value of a new construction, just as they would in the appraisal of an existing home. In particular, the appraiser needs to determine the impact distressed sales/listing activity has on the subject's immediate market area. There are many residential market areas where distressed sales/listing activity is so prevalent that it becomes the marketplace. Many of these distressed market areas are "new" developments, consisting of newer constructed homes(built in the last four or five years).
Appraisers responding to the claims of the NAHB agree that it is the responsibility of the builder to also know their market areas and to know whether or not the market supports the contract price of the new construction before starting the building process. Builders should also be aware that in a declining market, the new construction may be worth less at the end of their construction. If the builder chooses to build before doing their research, they are risking the possibility of the contract defaulting. Maybe builders should consider consulting with an appraiser prior to starting the new construction to determine current and future market conditions. There are plenty of appraisers in the field who would be happy to take on this consulting assignment.
There is no doubt that the NAHB may find appraisals of new construction that are faulty in some way. But to point the finger at the appraisal community as a cause for depressing the residential market place is nothing short of ridiculous. It appears that the NAHB is unaware of the regulations and guidelines that the appraisal community must adhere to when preparing appraisals. Further, it appears that the builders want to turn a blind eye to the actual market conditions that exist in many market areas.
The fact of the matter is simple: builders have a product to sell and the only thing that stands in their way is the appraiser. Sorry for the inconvenience NAHB, but the appraisal community has a job and we are going to do it right. Maybe the building community should take a long hard look at their business model and adjust to today's market conditions. The appraiser's responsibility is to their client and to continue to build confindence and trust for the appraisal community.