By Kevin Chiu
One out of three new home builders lost sales as a result of appraisals coming in at less than the agreed upon sales price in the last six 
months killing a recovery in the U.S. housing market, according to the National Association of Home Builders.
Declining home prices in most areas of the country is a major issue for the economy, especially homeowners who are seeing equity in their homes evaporate. More than one in four homes are underwater throughout the nation, and in some especially hard hit areas that have suffered higher levels of foreclosures as many as one in two homeowners are upside down or owe more on their mortgage than current values.
The issue is also causing construction workers to lose jobs when properties don’t sell.
The use of foreclosure and bank assisted short sales as comparables, often the only sales in an area to use in appraisals are hurting new home sales. “The inappropriate use of distressed and foreclosed sales as comparables in determining new home values is needlessly driving down home prices,” said NAHB chairman Bob Nielsen.
A nationwide survey of home builders found that 60% experienced appraisals coming in below the sales prices, and 53% said the appraisal actually came in under the cost of building the new home that was appraised.
New appraisal guidelines implemented by the Dodd-Frank financial reform require appraisers to use the most recent closest home sales as comparables. But builders say the practices are unfair and unreasonable since they are not necessarily comparables of newly constructed homes.
Hundreds of new home developments have come to a grinding halt as a result of the failed appraisals. Declining values on land and subdivisions under development has led banks to halt lending to developers and new home builders, and in some cases to even calling loans on projects already underway.
“Major reforms in appraisal practices and oversight are needed to ensure that appraisals accurately reflect true market values and don’t contribute to price volatility or harm aspiring homeowners and move-up buyers,” said Nielsen.