Calling the Federal Reserve's new interim rule on appraisals a welcome step in clarifying the home valuation process, NAHB on Oct. 22 said it would work with the Fed and others to ensure that the final rule provides transparency in the appraisal process along with sufficient flexibility to address the unique aspects of valuing new homes.

"The interim rule makes it clear that home builders and others can ask an appraiser to consider additional information about a property, including information about additional comparable properties. That's critical to our members because in far too many cases we're seeing appraisals based on inappropriate comparables." said NAHB Immediate Past Chairman Joe Robson, who has been leading the association’s push for sound appraisal practices.

The Federal Reserve unveiled the interim rule on Oct. 18. The rule will take effect 60 days after it is published in the Federal Register, with the Fed accepting comments on the interim rule during this period. Compliance is voluntary until April 1, 2011. The Fed's action was required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, which was signed into law on July 21.

"Many appraisers do not understand the impact of new code requirements, new green building practices and other aspects of new construction that add value to a home," Robson said. "It is particularly important that home builders be allowed to provide appraisers with information to assist in appraising new construction.”

"Accurate appraisals are critical to the residential construction industry because flawed appraisals can jeopardize sound projects," Robson said. "In the current economic climate it is already difficult to find financing for acquisition, development and construction, or AD&C. One appraisal that doesn't represent the true value of a property can start a chain of events that can put a builder out of business."

The Fed's interim rule also includes conflict-of-interest guidance prohibiting loan officers and mortgage brokers from selecting appraisers. It requires negligent appraisals and appraiser misconduct to be reported to the appropriate state appraiser licensing authorities and it says that appraisers should be paid at a rate that is reasonable and customary in the geographic market where the property is located and that reflects the difficulty of the assignment.

"We think it's very important that the compensation standards attract the expertise needed for complex appraisal assignments, such as those involving new construction," Robson said.

"Builders, developers, lenders, appraisers and other stakeholders need a better understanding of what they can and cannot do," Robson said. "This interim rule offers much needed clarity, and NAHB will be offering comments in an effort to make sure the final rule provides guidance that recognizes all of the issues involved in appraisals of new homes and restores confidence in the appraisal process."

For more information, e-mail Steve Linville at NAHB, or call him at 800-368-5242 x8597