Collaboration Between Builders and Appraisers Key to Navigating Rising Lumber Prices, Freddie Mac Says

Filed in Advocacy, Housing Finance, Material Costs by on May 3, 2021 9 Comments

lumber prices and appraisals

As lumber prices continue to rise, home builders face challenges selling homes that accurately reflect the increased costs of construction. This applies not only to lumber, but appliances and other key components as well due to supply constraints. Because these increased costs are not recognized during the appraisal process, the builder or home buyer is often left scrambling to secure extra funds to cover the difference between the appraised value and the actual cost of the home.

NAHB notes that home builders can mitigate this issue by preparing an “appraisal binder,” which will provide a cost breakdown of the materials used to construct the home. Providing this binder to the appraiser upon his or her arrival to inspect the home will help encourage the appraiser to apply the cost-approach method during the appraisal process, thereby reflecting the cost of materials used to construct the home.

“As an appraiser, I think this approach should be applauded and encouraged,” Scott Reuter, single-family chief appraisal officer at Freddie Mac, shared in a recent Freddie Mac blog post. “This information can be very helpful as an appraiser develops market support for actual costs.”

Reuter shared his perspectives on the appraisal process earlier this year on NAHB’s Housing Developments podcast, noting the tools available to appraisers to help indicate what’s occurring in the market.

“It’s really evident that while rising lumber and building materials costs are putting tremendous pressure on home builders, but by extension — and I know this group know that — it’s also creating tremendous challenges for appraisers,” Reuter noted to NAHB CEO Jerry Howard and Chief Lobbyist Jim Tobin. “A lot of these cost increases are likely not yet seen in closed-market transactions. So the segregated cost breakdown, the per-unit cost breakdown, some comparable sales — that’s tremendously helpful.”

Reuter encourages builders to share information such as:

  • Any market study or pre-appraisal the builder has completed
  • Copy of the sales contract or the custom home contract
  • Comprehensive list of the cost of the amenities and finishes for the home
  • Breakout of the monetary difference of recent major material cost increases versus their typical costs

“The best way to navigate the challenges presented by this environment is for builders and appraisers to continue to talk and collaborate — to better manage current assignments and lay the groundwork for positive relationships in the future,” he concluded.

A full version of the post, and additional resources, can be found on Freddie Mac’s website.

Comments (9)

Trackback URL | Comments RSS Feed

  1. David G BROWN says:

    One of the things I’d like to see most from builders to help is to update the local MLS with the most recent sales. As appraiser’s we have to back up our opinions with data. If the builder’s will include sales in the local MLS, and enter good data, upgrades and improvements, then as an appraiser we can support current market values. Simply providing the square foot of the house, room count, and sale price is NOT helpful.

  2. Rachel Spiers says:

    Certain appraisers are not willing to adjust for lumber costs. We find that quite regularly here in Pearl River County lately and it hurts EVERYONE. It’s amazing how widely appraisers differ when appraising the same house. There should be an across the board standard in place not just someone’s opinion. Especially when custom homes are being compared to spec type homes. Not Apples to Apples. There needs to be something done especially with the OUTRAGEOUS lumber costs and swings from day to day.

  3. We are struggling in Central Texas with appraisers not taking current material costs into account. It also does not help that some local builders do not list their sales in the MLS. Our local HBA is trying to work with those builders to get that data into the MLS. Recently, I had an appraisal come in $90k below our sales price. I was able to collect comps from another builder who is “too busy” to put the home into the MLS. I provided those closing documents and appraisals to the appraiser who shorted us $90K and he refused to adjust our appraisal because the information was not in the MLS.

Leave a Reply

Your email address will not be published. Required fields are marked *