The Official Online Weekly Newspaper of NAHB
NAHB has developed a set of guidelines to help builders communicate with appraisers and lenders to ensure that they receive an accurate valuation of the new homes they are selling.
The two-page document advises builders to meet with the appraiser on the site of where the home has been or will be built and provide direct support for the price with whatever relevant information they can.
For example, builders should provide the appraiser with all appropriate comps, market and absorption data, specifications of the property, materials in the property and why they were chosen, buyers’ reactions to products selected, and sales information.
Hiding data is one of the biggest mistakes builders make, according to the NAHB appraiser guideline, which urges builders to provide appraisers with all the relevant data.
In return, builders should demand that lenders use qualified, designated appraisers who are experienced in their local area, and who understand new construction and green building values.
The use of inexperienced or under-qualified appraisers by lenders is a major problem that negatively affects property values and remains an obstacle to the recovery of the housing market.
Banks have been relying upon appraisal management companies (AMCs) to select the appraiser. Too often this can be a matter of finding the appraiser who charges the lowest fee but doesn’t provide the best quality.
And an inadequate amount of time may be provided to complete the evaluation, making it difficult to adequately conduct proper research.
Appraiser selection criteria are based solely on lender guidelines, and NAHB recommends that a builder’s first concern should be the lender and its process of selecting appraisers.
Most lenders require one sale from the builder, one from a competing builder and/or a re-sale from the subject’s neighborhood.
The lender can require having two to three sales within 90 days in addition to one pending sale and one listing. However, the bottom line is that the appraiser is responsible for coming up with the most accurate valuation possible.
Lenders are not required to use AMCs. They can use local and regional appraisers who have more experience in the local market and who will apply less restrictive guidelines than an AMC.
Builders are advised to find out how lenders are choosing their appraisers and to make sure that the lender’s selection process is the best process for the builder.
For example, making selections on a rotating basis is not likely to yield the best results.
Lenders can order a second appraisal if they believe the first one is flawed.
To avoid having to challenge an appraisal for the use of inappropriate comparables, builders should make sure that appraisers have all the relevant information in-hand before the start of the process. This includes information on the best and all relevant sales.
Builders should keep a record of the data they give to the appraiser. When appraisers don’t use the information, builders should tell lenders they need to find out why.
In addition, builders should endeavor to “understand the appraiser’s challenges.”
If the appraiser is coming into a market where there are no sales, the builder needs to recognize that fact and talk about value.
NAHB recommends that builders develop a relationship with the appraiser, be willing to engage the appraiser to assist them in their efforts and don’t rely on the lender’s relationship with the appraiser.
For more information, view “NAHB Builder Guidelines to a Stronger and More Productive Relationship With Appraisers."
Also available is a recording of an NAHB webinar presentation, “Builders Guide to Appraisals,” which was developed jointly by NAHB's Housing Finance and Business Management & Information Technology committees and sponsored by Builder Partnerships.