flexiblefullpage - default
Currently Reading

Appraisal Nightmares

billboard - default

Appraisal Nightmares

Problems with appraisals are nothing new to the home building industry, but since the the Home Valuation Code of Conduct went into effect, the issue has grown 

By John Rymer, New Home Knowledge August 31, 2009
Home appraisal nightmare
Millions of dollars in profits and costs are being forfeited by builders due to the Home Valuation Code of Conduct's unintended consequences. | Image: KELLEPICS / Pixabay
This article first appeared in the PB September 2009 issue of Pro Builder.

Current estimates show that sales prices of nearly one in 10 new-home sales are "adjusted" prior to closing because appraisals are falling short of contracted sale prices.

While problems with appraisals are nothing new to the home building industry, since the the Home Valuation Code of Conduct (HVCC) went into effect May 1 for all conventional loans to be sold to Fannie Mae or Freddie Mac, the issue has grown from a minor distraction to a major tsunami. Millions of dollars in profits and costs are being forfeited by builders due to a program that has unintended consequences that have left home builders, real-estate agents, mortgage bankers, mortgage brokers, and even the appraisers themselves, complaining.

Remember that low-bid or random appraisers do not make good appraisers "evil;" they simply allow lazy appraisers or those with limited knowledge of a market to become the final arbiter of fair price.

Low-bid or random appraisers allow lazy appraisers or those with limited knowledge of a market to become the final arbiter of fair price.

Overcome this by making it as easy as possible for an appraiser to have the best information possible. While good appraisers will look to various sources of recent transactions such as MLS, tax records and contracted builder sales, a quick appraisal process may miss several important comparables.

Place all of your sales in MLS as a central clearing house to show fair value. Developing a "mock appraisal" at the time of contact acceptance will not only help justify your price if you're asked by an appraiser for help, it will allow the builder to understand if there are underlying appraisal issues needing attention prior to starting a home.

The HVCC process also undermines values on homes with high-cost options. To limit potential appraisal issues, cap the monetary value of options for all home buyers with minimal down payments. A good rule of thumb is no more than 5 percent of the purchase price for upgrades and options on entry-level homes and no more than 10 percent for move-up homes. For buyers who insist on a higher level of upgrades and options, require additional down payments or even open a post-closing renovation company to assist in upgrades after the closing.

Finally, assign one employee to work exclusively on appraisals. Having an experienced professional who is schooled in the requirements or HVCC and can provide a ready list of comparables at a moment's notice is the best way to make a compelling argument for your sales price.

Rymer's Rules

1. Place All Sales in MLS

Lazy appraisers often look no farther than MLS to develop comps, so any recent builder sales that are omitted from MLS will be absent for comparison.

2. Limit Upgrades

Bad appraisals are often due to upgrades' and options' being ignored or understated when adjusting to comparables. Rule of thumb is to limit options to 5 percent on first-time homes and no more than 10 percent on move-up homes.

3. Assign Specialists to Deal With Appraisers

Have one exclusive contact for appraisers. Untrained sales professionals or other employees can inadvertently be counterproductive.

John Rymer is the founder of New Home Knowledge, which offers sales training for home builders and real-estate professionals. You can reach him at john@newhomeknowledge.com.




Related Stories

Market Data + Trends

Homebuyer Desperation Is Leading to a Rise in Real Estate Fraud

Real estate scammers are targeting budget-conscious buyers and wreaking havoc on the for-sale market, and experts say the situation could get worse as market dynamics continue to shift


In a Volatile Market, Baby Boomers Are Coming Out on Top

The share of baby boomers closing on home purchases is rising, likely because a growing number of millennials and first-time buyers are being forced out of the for-sale market by sky high prices

Housing Markets

These Pandemic Boomtowns Are Cooling Down in 2023

Homebuying hotspots like Austin and Seattle are seeing slower sales and lower home prices as prospective buyers confront a series of new obstacles 

boombox1 -
native1 - default
halfpage2 -

More in Category

native2 - default
halfpage1 -

Create an account

By creating an account, you agree to Pro Builder's terms of service and privacy policy.

Daily Feed Newsletter

Get Pro Builder in your inbox

Each day, Pro Builder's editors assemble the latest breaking industry news, hottest trends, and most relevant research, delivered to your inbox.

Save the stories you care about

Lorem ipsum dolor sit amet lorem ipsum dolor sit amet lorem ipsum dolor sit amet.

The bookmark icon allows you to save any story to your account to read it later
Tap it once to save, and tap it again to unsave

It looks like you’re using an ad-blocker!

Pro Builder is an advertisting supported site and we noticed you have ad-blocking enabled in your browser. There are two ways you can keep reading:

Disable your ad-blocker
Disable now
Subscribe to Pro Builder
Already a member? Sign in
Become a Member

Subscribe to Pro Builder for unlimited access

Lorem ipsum dolor sit amet, consectetur adipisicing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.