So this week my 14-year old twins got to tag along with dad on an appraisal. How fun?! Do you ever get to take your kids with you to work? I hope so. It’s such a fun experience! Anyway, the appraisal we did wasn’t just an ordinary appraisal. It was a drive-by. No not that kind of drive-by! A drive-by appraisal. You read that right. Understandably, the girls had lots of questions. “That was an appraisal?” “Wait. You mean you don’t go inside the house?” “How do you know what’s inside the house?” All great questions, and thus a blog post is born!
Sometimes a bank or mortgage company will order an exterior-only appraisal (commonly called a driveby appraisal). From my experience, homeowners have a bunch of questions about these appraisals (just like my girls had), so in this post, we’ll briefly consider why a bank would order a drive-by appraisal, the benefits and drawbacks, and the challenges these appraisals present to appraisers.
Why would a bank order a drive-by appraisal?
Every financial institution has their reasons for not ordering a full interior appraisal. Here are some reasons you may only get an exterior-only drive-by appraisal:
- You have a ton of equity in your home. You may be getting a small home equity line of credit, or refinancing your current mortgage. You are only borrowing $40,000 and your home is likely worth somewhere around $200,000 (based on the recent sale price, perhaps). The risk is very low and so sometimes a bank will be ok with getting a drive-by, even though it may not be the most accurate option available.
- You’re in some stage of foreclosure. Many times during the foreclosure process, a bank will order a drive-by appraisal so that they can get an idea of what the home *might* be worth. Usually, the appraiser doesn’t call the homeowner in cases like these. Its usually not until the home is sold in foreclosure that the appraiser actually does a complete, full interior appraisal.
- Remember that it is the bank or mortgage company that decides if an appraiser completes a drive-by appraisal. Sometimes that conversation may take place between the appraiser and lender first, but 99% of the time, we get the order to do a drive-by appraisal from the bank, and that’s what we do. One of the most often-heard complaints about appraisers is this one from a borrower: “The last time we had the home appraised, they didn’t even come inside my home! Can you believe that?!” Yes, actually. I can. I try to explain to homeowners that it was likely because the appraiser couldn’t go inside the home. I don’t know any appraiser in their right mind who would actually choose a drive-by appraisal over a full interior appraisal if that was an option.
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What are the benefits and drawbacks of a drive-by appraisal?
Let’s look first at the benefits.
- The main benefit is that the homeowner (or lender) usually pays less for a drive-by appraisal. Although keep in mind that you usually get what you pay for. This statement is quite true when it comes to driveby appraisals.
- Another benefit to the homeowner is that the appraiser doesn’t have to come inside their home (my girls actually came up with this one!). Now, later you’ll see that this is also a drawback, but I concede that from some homeowners’ perspective, not having the appraiser come in can be a benefit. No cleaning. No getting out of bed early. No picking up trash from the weekend party.
And now for the drawbacks.
- Since the appraiser doesn’t go inside the home, I would argue that the value opinion they develop may not be as accurate as possible. If I were listing my home for sale and had just had a drive-by appraisal done on my home, there’s no way I would base my list price on that appraisal. Do buyers only look at the outside of homes they’re considering purchasing? No! Sometimes, the outside and inside of a home tell two wildly different stories. So while some may prefer the convenience of not having an appraiser in the house, nothing can take the place of having an appraiser’s eyes on the home (inside and out).
- Another drawback of a drive-by appraisal is that the lender is taking a HUGE risk with a drive-by appraisal. Is the information in public records accurate? Is the homeowner being truthful about the condition of their home if they speak with the appraiser? If no homeowner interview takes place, the appraiser must assume that the exterior and interior are basically in the same condition. What if the interior has been gutted? If the borrower defaults on the loan, the bank could be left with a real lemon.
What are the major challenges for the appraiser?
- As I’ve already mentioned, the appraiser doesn’t go inside the home, so they won’t have a clear idea of what your home is really like.
- Since we don’t go inside the home, we must rely on our exterior-only observation, and then fill in the gaps with public record information, and sometimes (see below), an owner interview. Usually, public records are inaccurate, and oftentimes, the homeowner is unsure about their square footage, etc. This makes completing a drive-by appraisal very difficult.
How everyone can make the best of a drive-by appraisal
Given the challenges presented here, appraisers can still provide their clients with the best possible appraisal report by going above and beyond spec. How do we do that? One word: communication.
If you’re a homeowner, I would first request a full appraisal from your lender. The nominal extra cost is well worth it. But, if they don’t comply, then make sure you give the lender all the best ways for the appraiser to reach you (phone, email, etc).
Of course, it is up to the appraiser from there. Too many appraisers simply do the bare minimum, and never contact the homeowner. Why? No clue. Maybe they’re just lazy. Maybe they’re just doing things to spec and they think that’s ok. I’m here to tell you that it’s not ok. The appraiser should always attempt contacting the borrower (when given their information), to confirm the information found in public records. This allows the homeowner an opportunity to describe their home to the appraiser (accurate square footage, bed/bath count, amenities, improvements, etc), and also proves that the appraiser has done all he or she could do to get the most accurate information possible. Now, if the homeowner is simply lying through their teeth, that’s on them (and goes back to the lender’s risk described above).
Drive-by appraisals have been around for years, and I don’t see them going away anytime soon. So, appraisers – let’s stop saying spec is enough. Let’s go above and beyond. Our clients need more. Our homeowners deserve more.
If you have any questions about drive-by appraisals, feel free to contact us anytime!
Helping homeowners navigate the appraisal process,
Ryan Bays, SRA, AI-RRS