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August 2, 2002

Housing Innovation and the Appraisal Process

In the last twenty years, residential construction and mortgage financing have changed. Changes in building products and materials, as well as improvements in labor productivity, stem from the shifting tastes of homebuyers in addition to concern about housing affordability, structure quality, environmental impact due to construction, and energy efficiency.

One roadblock to the rapid adoption of technology is the valuation of technology. Newer technologies typically add to the first cost of a home. Homebuilders are reluctant to adopt technologies that increase the cost of their product and reduce their market. Homebuyers are often unwilling to purchase technologies that are not reflected in the appraised value of the home, thus forcing the purchaser to cover the cost up front in the down payment rather than financing the technology over the life of a mortgage. Lenders are unwilling to provide financing for structures where the value of the property is unknown in the event of foreclosure.

Valuation of innovation in residential buildings depends on the appraiser's perspective. Moreover, the attitude and role of other actors with a stake in new technologies can also influence the appraisal process.

In order to understand the roles and perspectives of the key players in the home valuation process, the U.S. Department of Housing and Urban Development sponsored a Roundtable discussion, held in Bowie, Maryland on December 18, 2001. Participants included representatives from the home building and development, appraisal, real estate, lending, energy, and research sectors. Participants were asked to give a perspective statement on the valuation of residential housing technology based on their industry. Additional questions were asked about property valuation, information sources, roadblocks to innovation, and areas for potential improvement for technology adoption.

Results from the Roundtable discuss were recently published by the event's host, the National Association of Home Builder's Research Center. To learn more about the findings and suggested strategies for improving the appraisal process, download the publication Housing Innovation and the Appraisal Process.

Content updated on 9/26/2003

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