re: NAHB Applauds GSE Adjustments of Appraisal Guidelines

son trinh — Thu, 16 Jul 2009 19:47:44 GMT

@articel: ***He cited a recent survey by NAHB that found that 26 percent of builders have seen signed contracts fall apart because of appraisals that do not reflect the contract sales price. Of these, 54 percent said that the questionable appraisals were actually coming in at less than the cost of building the home. In addition, 60 percent of those responding to the survey knew of problems in their market areas caused by inadequate appraisal values. The biggest problem reported resulted from the use of foreclosures and distressed sales as comparables.*** The argument is very weak in this case. While blaming on the appraisers for carelessly dragging the market value down, these big shots ignore the most basic and essential key to economic appraisal analysis - The principle of substitution-When an asking price for a piece of property is higher than the price of other similar homes within the neighborhood, that property will not sell for the full asking price. Freddie Mac and the homebuilders have also ignored the principle of competition of Economy 101. When there are many companies produce surplus similar products in a particular market, whosever’s products are offering lower price will dictate the market trend. It appears, in some areas, that the ratio of distressed sales takes a much bigger market segment than the number of normal sales at this present time. Hence, the market value in the affected area will inevitably be affected by that special sale condition. Using a wider geographical and demographical area, without considering the regional elasticity of the real estate market, may not represent the actual market value of the subject’s immediate area.