Faulty Appraisal Process Harming Housing and the Economy, Says NAHB

WASHINGTON--(Business Wire)--
Twenty-six percent of builders are seeing signed sales contracts fall through
the cracks because appraisals on their homes are coming in below the contract
sales price, according to a nationwide survey conducted by the National
Association of Home Builders (NAHB).

"Home builders are increasingly concerned that inappropriate appraisal practices
are needlessly driving down home values. This, in turn, is slowing new home
sales, causing more workers to lose their jobs and putting a drag on the
economic recovery," said NAHB Chairman Joe Robson, a home builder from Tulsa,
Okla.

The survey showed that nearly 60 percent of the builders are reporting that
inadequate appraisals are causing serious problems in the market, with the
biggest problem being comparables of new single-family homes that are too often
based on foreclosures and distressed sales.

"Lost home sales are killing jobs, deepening the housing slump and hurting local
economic activity," said Robson, adding that construction of 100 single-family
homes adds 324 local jobs, $21.1 million in local income and $2.2 million in
taxes and other revenue for local governments with the first year.

Of those who are reporting appraisal problems, 54 percent said that the
appraisal amount was actually less than the cost of building the home.

Robson said that foreclosure and distressed sales should not be used without
appropriate adjustments to reflect the expenditure that would be required to
bring them up to the condition and quality that represents a reasonable
alternative for the home buyer.

In what Robson called a step in the right direction, Freddie Mac on July 10
issued a Guide Bulletin publicly stating that 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 stipulated that appraisers must "certify that comparable sales chosen
are those most similar to the subject property."

While the appraisal practices currently in use are taking a heavy toll on the
housing market, they are also 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, Robson 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.

NAHB is calling on housing and federal financial regulators to adopt clear,
concise regulatory guidance that will allow appraisers to develop realistic
valuations based on sales that are truly comparable.

In neighborhoods where the 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
picture of the value of homes sold in the area.

"You can`t compare a well-constructed new home with a foreclosed property that
has been vacant for months and was probably neglected for a long time before it
was vacated," said Robson. "Acting now to establish proper regulatory guidelines
for those who use distressed or foreclosed properties as comps when determining
home values will help to stabilize home prices and home sales and put people
back to work."

ABOUT NAHB: The National Association of Home Builders is a Washington,
D.C.-based trade association representing more than 200,000 members involved in
home building, remodeling, multifamily construction, property management,
subcontracting, design, housing finance, building product manufacturing and
other aspects of residential and light commercial construction. Known as "the
voice of the housing industry," NAHB is affiliated with more than 800 state and
local home builders associations around the country. NAHB's builder members will
construct about 80 percent of the new housing units projected for 2009.

National Association of Home Builders (NAHB)
Donna Reichle, 202-266-8473
dreichle@nahb.com
www.nahb.org

Copyright Business Wire 2009