The increased cost of lumber, appliances, and other components of a home impacted by the disrupted supply chain can be difficult for appraisers to recognize, resulting in differences between the appraised value and actual cost of the home. To prevent this scenario, the National Association of Home Builders suggests creating an appraisal binder that includes a cost breakdown of the construction materials. Builders can give appraisers the binder, which will encourage them to use the cost-approach method during the appraisal process. Freddie Mac’s single-family chief appraisal officer applauds and encourages this strategy.
“As an appraiser, I think this approach should be applauded and encouraged,” Scott Reuter, single-family chief appraisal officer at Freddie Mac, shared in a recent Freddie Mac blog post. “This information can be very helpful as an appraiser develops market support for actual costs.”
Reuter shared his perspectives on the appraisal process earlier this year on NAHB’s Housing Developments podcast, noting the tools available to appraisers to help indicate what’s occurring in the market.
“It’s really evident that while rising lumber and building materials costs are putting tremendous pressure on home builders, but by extension — and I know this group know that — it’s also creating tremendous challenges for appraisers,” Reuter noted to NAHB CEO Jerry Howard and Chief Lobbyist Jim Tobin. “A lot of these cost increases are likely not yet seen in closed-market transactions. So the segregated cost breakdown, the per-unit cost breakdown, some comparable sales — that’s tremendously helpful.”