Distressed Comps Killing New Home Sales

A survey by the National Association of Home Builders found that 26 percent of builders are losing sales contracts because appraisals are coming in below the contract sales price, the trade group announced today.

Nearly 60 percent of builders claimed inadequate appraisals are causing serious problems in the market — while more than half of that group reported appraisals are coming in below the cost to build. Among the problems are a credit crunch for development financing.

The issue reportedly stems from the frequent use of distressed and foreclosed comparable properties without making adjustments for the differences in condition.

“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,” NAHB Chairman Joe Robson said in the statement.

Robson noted that the faulty appraisals are only hampering any economic recovery as a decline in new home sales leads to more job losses. He said that the construction of 100 single-family homes generates 324 local jobs, $21 million in local income and $2 million in tax revenues.

NAHB praised a bulletin issued by Freddie Mac Friday that appraisers do not need “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,” NAHB’s statement said. Freddie’s bulletin reportedly said appraisers must certify that comparables used are those most similar to the subject property.

“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,” the Washington, D.C.-based trade group said.