Government study faults home appraisal process
The U.S. Government Accountability Office (GAO), in a recent study on the effectiveness of real estate appraisals, found that the Appraisal Subcommittee, which oversees the regulatory programs established by the states, has not adequately performed its duties because of underfunding and other problems.
The GAO’s findings only underscored what the National Association of Home Builders (NAHB) has been shouting from the rooftops: Faulty appraisals have been sabotaging home sales at a time when the housing market can least afford it.
In a Web-based survey conducted from June 2011 to July 2011, the GAO examined state appraiser regulatory agency representatives from the 50 states, the District of Columbia, and the territories of Guam, Northern Mariana Islands, Puerto Rico, and the Virgin Islands. It found that the Appraisal Subcommittee had not, for example, established a complaint hotline to receive complaints over noncompliance with appraisal independence standards or grievances from appraisers, individuals or other entities over attempts to improperly influence appraisers or the appraisal process. Nor had the subcommittee provided grants to state regulatory agencies as stipulated by the Dodd-Frank Act.
"These findings underscore the need to establish an effective oversight system to ensure that appraisals accurately reflect true market values and don't harm aspiring home buyers or builders," said NAHB chairman Bob Nielsen, a home builder from Reno, Nev.
A recent NAHB survey showed that one out of three builders have lost signed sales contracts because of flawed appraisals, and a fall survey conducted by the National Association of Realtors showed that 18% of realtors reported a recent contract cancellation or delay as a result of a low appraisal.
Observing that "the critical role of real estate appraisals in mortgage underwriting underscores the importance of effective regulation of the appraisal industry," the GAO study recommended that the Appraisal Subcommittee develop specific policies and procedures for monitoring the appraisal requirements of the federal financial institutions regulators.