The House Insurance, Housing and Community Opportunity Subcommittee on June 28 held a hearing on appraisal oversight and NAHB submitted a statement for the record on the need to resolve an appraisal process that has gone seriously awry.
NAHB stated that “appraisal standards are not clear, best practices have not been well communicated, and enforcement is not occurring in a consistent manner. NAHB is not advocating that appraisals should be higher than the real market. Rather, our goal is to establish an appraisal system that produces accurate values through all phases of the housing cycle.”
A key concern is that some appraisers are using distressed sales – many of which have been neglected and are in poor condition – as comparables in assessing the value of brand new homes, without accounting for major differences in condition and quality. Without such adjustments, the two are not comparable.
The inappropriate manner in which distressed sales are utilized is distorting home valuations. Use of the cost and income approaches in conjunction with the comparable sales approach would mitigate such distortions, NAHB’s statement said.
NAHB also told lawmakers that “regulatory oversight of the appraisal industry is a dysfunctional patchwork of federal and state regulations,” and cited a study by the Government Accountability Office that found many weaknesses in appraisal oversight, including weak enforcement tools and inadequate policies and procedures for monitoring appraisal requirements.
“The failures in the process noted by GAO perpetuate the cycle of declining home values, drive more home owners under water, negatively affect housing demand and are obstacles to the recovery of the housing market. Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and do not contribute to price volatility.”
NAHB informed lawmakers that the association has conducted four appraisal summits since 2009 to provide opportunities for the agencies and organizations that establish appraisal standards and guidelines to join housing stakeholders in a constructive dialogue on major appraisal topics of concern. The goal of these summits is to identify recommendations and solutions that participants can jointly pursue to improve the appraisal process.
Through the appraisal summits and feedback from builders and others in the field, NAHB has identified the following key areas to improve current appraisal requirements and practices:
- Strengthen education, training and experience requirements for appraisers of new home construction.
- Improve the quantity and quality of data for new construction.
- Develop new appraisal standards and best practices for conducting appraisals in distressed markets.
- Develop processes for expedited appeals of inaccurate or faulty appraisals.
- Strengthen oversight of appraisal activities.
NAHB provided lawmakers additional details on these bullet points and stands ready to work with all relevant stakeholders to reform appraisal practices that support accurate and sustainable values.
View NAHB’s statement.