The Government Accountability Office (GAO) earlier this month reported that the Appraisal Subcommittee, which oversees the appraiser regulatory programs established by the states, needs to improve its monitoring procedures.

"These findings underscore the need to establish an effective oversight system to ensure that appraisals accurately reflect true market values and don't harm aspiring home buyers or builders," said NAHB Chairman Bob Nielsen, a home builder from Reno, Nev.

A recent NAHB survey shows that one out three builders have lost signed sales contracts because of flawed appraisals and a fall survey conducted by the National Association of Realtors shows that 18 percent of Realtors reported a recent contract cancellation or delay as a result of a low appraisal.

Numerous flaws in the appraisal system have been causing inaccurate home valuations, both in times of housing weakness and strength. NAHB has been actively seeking improvements in appraiser education and training, particularly for appraisals of new homes, as well as more rigorous oversight so appraisal guidelines are enforced and errors can be corrected as they occur.

The GAO report found the Appraisal Subcommittee's "enforcement tools and procedures for reporting compliance levels have been limited." The GAO cited "several weaknesses" that have potentially limited the subcommittee's ability to monitor state appraiser regulatory agencies, the federal financial institution regulators and the Appraisal Foundation, a private, non-profit corporation that sets criteria for appraisals and appraisers.

Observing that "the critical role of real estate appraisals in mortgage underwriting underscores the importance of effective regulation of the appraisal industry," the GAO study calls on the Appraisal Subcommittee to strengthen its oversight by developing specific policies and procedures for monitoring the appraisal requirements of the federal financial institutions regulators.

"The current system is not working," Nielsen added. "We must resolve a flawed appraisal process that produces inaccurate assessment of home values, because this fosters price instability, puts more families in danger of default or foreclosure, and undermines the housing and economic recovery. It's time that regulators, appraisers, lenders and all of the stakeholders in this debate come together and agree on major reforms in appraisal practices and oversight to ensure that homes are appraised at their fair market rate."