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NAHB Asks Bank Regulators for Prompt Action on Faulty Appraisals

In a July 27 letter, NAHB has asked banking agencies for guidance to instruct appraisers on the proper procedures for using distressed or foreclosed properties as comparables in new single-family home appraisals.

“We have noticed that some appraisers are frequently using distressed and foreclosed property sales as comparables in conjunction with appraisals on single-family home sales without properly adjusting the comparable property values to reflect the relative conditions of the properties,” the letter said.

This practice, the letter complains, often results in undervaluing new properties for sale and “contributes to the continuing downward spiral in home prices, forestalling the economic recovery.”

The letter was delivered to Comptroller of the Currency John Dugan; Sheila Bair, chairman of the Federal Deposit Insurance Corporation; Ben Bernanke, chairman of the Federal Reserve System; and John Bowman, acting director of the Office of Thrift Supervision, and also sent to the Democratic and Republican leaders of the Senate Banking and House Financial Services committees.

Initiated and coordinated by NAHB, the letter was also signed by the American Bankers Association, the Independent Community Bankers of America and the Mortgage Bankers Association.

In the correspondence, NAHB noted that appraisers normally cannot gain access to the interior of a home being used as a comparable and that they are only required to conduct exterior inspections of these properties. As a result, they are not determining if a foreclosed or distressed-sale property being used as a comparable has deferred maintenance issues or has suffered internal damage.

“A prospective purchaser would most assuredly recognize the differences in the value proposition between a well-kept home and a distressed property that is damaged or not properly maintained and the same should be true of an appraiser,” the letter said.

NAHB and the other organizations signing the letter asked for prompt action from the agencies responsible for bank regulation to correct the continuing improper use of distressed and foreclosed properties as comparables, including:

  • Guidance that encourages appraisers to expand the area and/or time frame in which comparable properties are selected if there are an insufficient number of homes in the area of the property being appraised that have not been subject to foreclosure or distressed sales.

  • The guidance should “emphasize that an appraiser should further investigate and consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale in determining value when a foreclosed property is used as a comparable.”

To read the letter, click here.

For more information, e-mail Bill Renner at NAHB, or call him at 800-368-5242 x8597.

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