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Housing Innovation And The Appraisal Process

Report Acceptance Date: 
December 2001 (28 pages)
Posted Date:   
August 18, 2006

The housing industry has experienced remarkable change in terms of how homes are built, the materials incorporated into residential structures, and how these structures are financed or purchased. Subtle technology changes that reduce the cost of construction are generally readily adopted. For example, the switch from plywood to oriented strandboard (OSB) has occurred rapidly since its inception in 1982. OSB production exceeded that of plywood production for in first time in 2000 (Structural Board Association, 2000). For technologies radically different from conventional practice, or those that increase the first cost of a home, adoption has been more difficult.

One of the perceived obstacles to technology adoption is the real estate appraisal process. Technologies that increase the first cost of a home, but provide benefits such as increased comfort, durability, energy efficiency, etc., may not be reflected in the appraised value of a home resulting in insufficient loan value for the purchase of that home. The prospective homebuyer is left to either subsidize the technology through a higher down payment or choose lower cost conventional technology.