Podcast: An Inside Look at Appraisals and Rising Lumber Prices

Filed in Advocacy, Material Costs by on February 25, 2021 5 Comments

On the latest episode of the Housing Developments podcast, NAHB CEO Jerry Howard and Chief Lobbyist Jim Tobin have a candid discussion with Scott Reuter, chief appraiser and head of valuation at Freddie Mac, and Kurt Dinnes, founder of Sun Custom Homes in Oklahoma City, on the appraisal process during this time of skyrocketing lumber prices.

Reuter brings more than 30 years of housing finance experience to provide insights into the appraisal process, including the importance of builders engaging with the appraisers. Dinnes brings a builder’s perspective to the conversation and shares his strategies for getting appraisals to better reflect the increasing costs of materials.

This is a don’t-miss episode for everyone in the home building and real estate sphere. To listen to previous episodes of Housing Developments, visit nahb.org/podcast or search for our show wherever you find podcasts.

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  1. William says:

    Tank you for the information

  2. Melissa Bond says:

    I am a Continuing Education provider to Real Estate Appraisers. I have just developed a course “The Cost Approach” for continuing education for appraisers. The purpose of developing this was to educate appraisers on the how relevant the cost approach to value is and that secondary market financing allows latitude on this. I offer this in many states. My family is generational in single-family residential building.

  3. Warren says:

    Excellent information. Great panelists with a wealth of experience and knowledge. Thanks!

    One thing I would push back on however, is that at times some comments made it seem as if reaching “the number” is the job of the appraiser. Use of phrases like, “unfavorable or unsatisfactory outcome” or “in order to receive a fair appraisal” can give one the impression that only an appraisal that reaches contract price is a correct appraisal. There is a party in the process that may think an appraisal not reaching contract price as “favorable” to them, correct? Impartiality and being unbiased is our job and there is a consumer in this transaction that would hope that although we use all available methods applicable to that specific assignment, also hopes that we aren’t being pressured by their builder.

    As appraisers we certainly need to be aware of these issues and employ ALL justifiable and applicable methods to account for these rising building costs. Certainly I would agree that JUST relying on the sales comparison approach to value is not always the end-all-be-all for a new construction appraisal. Realize though, that some GSE’s allow for the development of a cost approach but won’t allow us to weight our final opinion of value on it at all. So for some if the sales aren’t there to support, all of the greatest cost data in the world provided by the appraiser will fall on the deaf ears of an underwriter. That said, Kurt (the custom home builder on the podcast), mentioned that when a report comes back “unfavorable” he may:
    1. Suggest the buyer change banks to get a new appraiser
    2. Give a comprehensive cost breakdown of all facets of the home
    3. Provide comparables sales
    4. Provide a copy of the pre-appraisal
    5. Meet the appraiser in-person to go over the project’s details/costs/etc.

    And then after this this ask for a face to face meeting if it still isn’t “coming in favorably”? I can’t help but think that if I were in this situation I would MOST DEFINITELY feel as if there was a bit of “undue pressure” there. Again, many of Kurt’s ideas are wonderful and I wish were done on every transaction by every builder. I feel like providing this information is not going above and beyond, rather should be standard on every transaction. The idea that even after all of this a report not “coming in favorably” is somehow wrong is not something that will not give the public a very good sense of impartiality by the appraiser. We have to stop saying that a “low appraisal” is a “wrong appraisal”. This sentiment that is sometimes thrown out there by many builders and Realtors is causing this ‘cranky mood’ that Scott mentioned in the podcast.

    At some point if avocados get to be too expensive maybe making guacamole isn’t a good business decision anymore? Obviously that cost is passed on to the consumer and they then decide to opt for salsa with their Chipotle order instead of the $9.00 side of guacamole?

    This is a problem that should not be put to the appraiser as if to say, “costs are up so you need to employ more tactics to reach the number”. I may be taking the sentiment a bit far to make my point, I understand, but did want to voice it to make sure the boots on the ground appraiser is heard.

    Tough subject, but necessary to discuss in our industry and thanks for taking it on! (Would love to know WHY lumber prices are going up? I don’t feel like this was ever mentioned.)

    THANKS!

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