Serious problems in the residential appraisal process must be addressed in order to restore confidence in the residential real estate market and to establish a foundation for sustainable growth of the U.S. economy, according to a new white paper from the National Association of Home Builders (NAHB).

Appraisals are regulated by the states, so standards and requirements vary greatly, resulting in a system that is inconsistent, confusing and does not serve consumers well. The white paper, "Comprehensive Blueprint for Residential Appraisal Reform," addresses these perceived problems. 

It is the work of an Appraisal Working Group formed by NAHB last year to develop recommendations for comprehensive residential appraisal reform. The group consists of homebuilders and representatives from the financial and appraisal sectors. The Appraisal Working Group sought input from representatives of all stakeholders in the residential appraisal process, and the white paper offers specific recommendations for changes to all aspects of the appraisal system.

"Even as the residential construction industry shows signs of recovery, housing activity is thwarted by an appraisal system that remains dysfunctional and is a major impediment to a stable housing finance framework," said Rick Judson, NAHB chairman and a homebuilder from Charlotte, N.C. "Until we see meaningful appraisal reform, the U.S. housing finance system will be operating under unprecedented uncertainty."

Judson praised the efforts of Appraisal Working Group co-chairs Barry Rutenberg, NAHB's immediate past chairman, and Joe Robson, who served as NAHB chairman in 2009, for their leadership.

The Appraisal Working Group addressed the need for reform in four broad areas:

• Regulatory framework and oversight
• Data and technology
• Professional standards
• Practice, process and procedures

"The states are responsible for oversight of appraisal practices, but many states do not provide the funding necessary to perform this function adequately," Rutenberg said. "A modest investment in appraiser licensing and certification would go a long way toward improving the appraisal system."

In its white paper, the Appraisal Working Group states that the regulatory framework for real estate valuation needs to foster more effective oversight of standards, guidance and enforcement.

The goal is to better integrate and streamline the jumble of existing requirements set forth by various entities to ensure that residential appraisals occur in a coordinated and effective manner and are subject to uniform and consistent standards. A more unified and functional system is required to:

• Establish ethics and uniform standards
• Promulgate best practices
• Monitor the activities of state appraisal boards
• Establish licensing and certification standards
• Set minimum education requirements 
• Support independent education and training programs
• Create policies to ensure appraiser independence
• Enforce and oversee authority for anyone who engages an appraiser
• Establish a standards body responsible for setting data and technology standards

"We believe the white paper has many good ideas that stakeholders can agree on, and we are hopeful that policy makers will move forward soon on many of these proposals," Robson said. "We look forward to working with our many partners to achieve meaningful reforms."

The white paper can be found online at www.nahb.org/appraisalwhitepaper