I am a former home builder and former member of the NAHB. I am also a member of the Kentucky appraisal board that licenses and certifies appraisers in Kentucky; however my observations and comments are my own and should not be considered the official policy of the board.
I do not dispute the numerical survey findings you report in the article entitled "NAHB Survey: Appraisals Hurting Market," but I must respectfully disagree with the main theme and conclusion of your article--appraisals are hurting the market. In actuality, the housing recovery in the various housing markets in this country will happen when the economic fundamentals underlying the housing markets in the various sub-markets in our nation will allow it to happen--not before. When the positive economic fundamentals are present, no appraiser or groups of appraisers can or will derail market improvement.
Appraisers are just not powerful to control the real estate market; it is that simple. I would like to respectfully debunk some common misunderstandings and errors that were used to buttress the main theme of the article.
Error 1: Appraisers 'kill' a deal. An appraisal in and of itself does not "kill" a deal. An appraisal allows a financial institution to estimate whether or not it is making a 70% loan-to-value loan or a 95% loan-to-value loan and price the deal (i.e set the interest rate) accordingly. That is all. If the borrowers want to purchase the property regardless of the value reported by an appraisal, they are perfectly free to do so. If they are so positive that the appraiser is wrong, there is absolutely nothing standing in the way of their purchasing the property other than them shouldering more of the risk by making a larger down payment or paying a higher interest rate because they are asking the bank to make a riskier loan.
Error 2: Cost always equals value. Any homebuilder that has been building very long will tell you that sometimes a new home will sell for a price less than the cost of construction. This can occur for a variety of reasons, including building a home with attributes, extras, and/or features that are not demanded in the market. Every builder with any history has occasionally been stuck with a house (or houses) that did not sell. They can certainly tell you that cost does not always translate into value.
Error 3: A signed contract to purchase indicates the value of the property. Appraisers are called upon to estimate the, "the most probable sales price" (quoting from the statutory definition of market value)--not the "highest price" a property will bring (quoting from an old and now outdated definition of market value). An old appraiser once lectured me on the 1 fool versus 2 fool theory. Real estate salespeople and builders operate under the 1 fool theory--they hope to find at least one "fool" that will pay the asking price. Appraisers are called upon to make sure that there is a second fool will also pay that same price. That difference goes a long way in explaining the difference between a contract price and market value estimate.
Are there bad appraisers? Certainly, just like there are bad homebuilders. An overwhelming majority of homebuilders, especially those affiliated with NAHB are good reputable builders, but there are a few builders out there that make it difficult for the many. Similarly I will submit that a majority of appraisers are good appraisers, but there a few bad appraisers make it difficult for the many. Every state has a board that licenses and certifies appraisers. I would advise your readers to submit those bad appraisals and appraisers to their state's appraiser licensing board for possible disciplinary action and to insure compliance with the appraisal guidelines that are already the law of the land.
--G. Herbert Pritchett, MAI CCIM,Madisonville, KY