Realty Check

Published: Monday, 27 Jul 2009 | 3:02 PM ET

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stangls Home Construction

The good news is that sales volumes of new construction are rising; the bad news is they're doing so despite growing trouble with appraisals.

I can't seem to talk to anyone in the real estate industry on any topic without hearing something about appraisals. We've been over the new appraisal rules, requiring the fire wall between lenders and appraisers. We know the new rules are resulting in less qualified appraisers, perhaps with no knowledge of a local market, mucking up the process.

Now we're hearing from builders that appraisers are using distressed properties, that is foreclosures and short sales, as comps for new construction. In her monthly homebuilding Survey, analyst Ivy Zelman notes:

Commentary in this month’s survey was dominated by frustration with inconsistencies in the appraisal process. Survey respondents are concerned that these appraisal issues will make it difficult to stabilize home values, as appraisers are being extremely conservative using foreclosures and short sales predominantly as comps, based on fears of potential backlash or liability.

Home builders are in direct competition with foreclosures in many markets, because a lot of foreclosures are new construction.

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Builders can only cut their prices so far, given the money they've laid out to build.

The National Association of Home Builders' Bernard Markstein told me this morning, that "in a lot of places the appraisers have not been adjusting for the fact that it's [the comp] a foreclosed home or a short sale, and we've even had cases where appraisals have come in 10 or 20 percent below the construction costs of a new home."

Clearly we are settling in for recovery, despite the expected bumps in the road ahead and the land mines of rising foreclosures.

The appraisal issue seems an unnecessary roadblock, when so many other tools, government and private sector, are being employed to jumpstart housing.

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