The National Association of Home Builders Monday released the results of a survey that showed 26% of builders are seeing signed sales contracts fall through because appraisals on their homes are coming in below the contract sales price. Nearly 60% said "inadequate appraisals" were causing serious problems in the housing market.
NAHB put out a statement calling on federal and local regulatory officials "to adopt clear, concise regulatory guidance that will allow appraisers to develop realistic valuations based on sales that are truly comparable." Those sales would not include foreclosures and short sales, which are dragging comps down wherever they occur.
The survey said that of those builders who are reporting appraisal problems, 54% said that the appraisal amount was actually less than the cost of building the home.
"Home builders are increasingly concerned that inappropriate appraisal practices are needlessly driving down home values," said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. "This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery.
The NAHB said it was encouraged by a July 10 "Guide Bulletin" from Freddie Mac that said it does not require appraisers to use Real Estate Owned, foreclosures or short sales in selecting comparable sales to provide an accurate opinion on home values based on market data. Freddie further said that appraisers must "certify that comparable sales chosen are those most similar to the subject property."
The assocaition also claimed that the new appraisal code, which took effect in May, is "further exacerbating economic distress by affecting the availability of acquisition, development and construction (AD&C) credit. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans, NAHB said.
"If the spigot for housing production loans is cut off, there can be no housing recovery, and this has major implications for the economy as a whole," said Robson.