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The What and Why of A Drive-By Appraisal

The What and Why of A Drive-By Appraisal

A car gently pulls up in the street at the front of your house. Somebody with a camera starts taking photographs of the front, the sides, and up and down the street. No, he's not casing your home for somewhat malicious but is doing a drive-by appraisal. Also recognized as a summary appraisal, external inspections of homes by licensed real estate appraisers are used for detailing similar values or home sales when a loan lender is considering issuing a loan against the property. However a drive-by appraisal originates an estimated worth of a property; it's not almost as thorough as a regular interior home appraisal.

Occasionally a bank or mortgage firm will order an exterior-only appraisal (commonly called a drive-by appraisal). In this post, we’ll concisely reflect why a bank would order a drive-by appraisal, the aids and disadvantages, and the challenges these appraisals present to appraisers.

 

Why would a bank order a drive-by appraisal?

Each financial institution has its explanations for not ordering a full interior appraisal.  Here are some aims you might only get an exterior-only drive-by appraisal:

You have lots of equity in your home. You might be getting a small home equity line of credit, or refinancing your current mortgage. You are only using $40,000 and your home is probably worth somewhere around $200,000 (based on the recent sale price, perhaps). The risk is very slight and so infrequently a bank will be ok with getting a drive-by, even though it might not be the most exact choice available.

You’re in some phase of foreclosure. Many times during the foreclosure process, a bank will order a drive-by appraisal so that they can get a sentience of what the home *might* be worth. Typically, the appraiser doesn’t call the homeowner in circumstances like these. It’s typically not until the home is sold in foreclosure that the appraiser does a whole, full interior appraisal.

Evoke that it is the bank or mortgage firm that agrees if an appraiser finishes a drive-by appraisal. Occasionally that chat may take place between the appraiser and lender first, but 99% of the time, we get the instruction to do a drive-by appraisal from the bank, and that’s what we do.  One of the most often-heard objections 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, really. I can. I try to clarify to homeowners that it was likely because the appraiser couldn’t go inside the home.  I don’t recognize any appraiser in their right mind who would select a drive-by appraisal over a full interior appraisal if that was a choice.

Also, read reasons to get a home appraisal before purchasing

 

Tip

A kind of drive-by appraisal, known as a BPO, or a Broker's Price Opinion, is ordered by a lender when mortgage expenses are past due and the property appears to be descending into foreclosure. These are done by real estate salespeople, not certified appraisers.

 

Drive-By Appraisal Usage

Many loan lenders need a full interior and exterior appraisal before permitting mortgage loans. A drive-by appraisal, occasionally requested by the mortgage lender, takes a look at the area and at the noticeable condition of a home's external to get a fast idea of a property's street worth. Appraisers doing drive-by appraisals snapshot the site and make notes about the property's condition, usually grounded from a view from the street. These appraisers also base the property's worth on data such as recent real estate sales and schedules near the site.

 

Appraisal Cost

A normal appraisal counting a full home inspection be around $300 to $500, though this might differ based on property location and size. Licensed appraisers typically base their fees on what's usual in the area where the appraisal is being done or in agreement with strategies issued by organizations such as Fannie Mae, Freddie Mac, and the U.S. Department of Housing and Urban Development (HUD). The same appraiser will charge significantly less for a drive-by appraisal since it includes less time.

 

Finding Comparable Properties

Residential real estate appraisers associate similar homes in the neighborhood when evaluating a property's value. The similar properties, called "comps," upkeep the appraiser's valuation of a specific home, and also can specify market trends in terms of similar properties sold in the instant area of the home being appraised. Mortgage lenders also might order drive-by appraisals for defining the condition of homes abandoned or in the procedure of foreclosure.

 

Drive-By Appraisals and Refinancing

Mortgage lenders normally need a complete appraisal, counting interior and exterior checks, of homes being refinanced. They do this to prove that the property being refinanced is worth enough to help as collateral for the refinanced mortgage. Homes financed or refinanced with HUD 203(k) home renovation mortgages might be subject to drive-by appraisals of the renovation progress as well as inspections led by building and code enforcement officials. If refinancing, ask your investor if the fee must be paid by you upfront or if it will be revolved into a refinancing package.

 

What are the aids and disadvantages of a drive-by appraisal?

Let’s look first at the assistances.

The main advantage is that the homeowner (or lender) commonly pays less for a drive-by appraisal. Though keep in mind that you commonly get what you pay for. This declaration is quite true when it comes to driveby appraisals.

Another advantage to the homeowner is that the appraiser doesn’t have to come inside their home. Now, later you’ll see that this is also a disadvantage, but look that from some homeowners’ viewpoint, not having the appraiser come in can be an advantage.  No housework. No getting out of bed early. No picking up garbage from the weekend party.

 

And now for the drawbacks.

As the appraiser doesn’t go inside the home, the value estimation they develop may not be as precise as possible. If I was listing my home for auction and had a drive-by appraisal done on my home, there’s no way I would base my list price on that judgment.  Do purchasers only look at the outside of homes they’re making an allowance for purchasing? No! Occasionally, the external and inside of a home tell two eagerly dissimilar stories.  So while some might wish the suitability 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 disadvantage of a drive-by appraisal is that the investor is taking a HUGE risk with a drive-by appraisal.  Is the info in public records correct? Is the homeowner being honest about the condition of their home if they speak with the appraiser?  If no homeowner meeting takes place, the appraiser must assume that the external and internal are basically in the same condition. What if the interior has been eviscerated?  If the borrower defaults on the loan, the bank could be left with a real lemon.

 

What are the major tests for the appraiser?

As I’ve already stated, the appraiser doesn’t go inside the home, so they won’t have a perfect idea of what your home is actually like. 

Since we don’t go inside the home, we must trust on our exterior-only opinion, and then fill in the gaps with public record info, and occasionally (see below), an owner interview. Typically, public records are inexact, and oftentimes, the homeowner is insecure about their square footage, etc. This makes completing a drive-by appraisal very problematic.

 

Conclusion:

Drive-by appraisals have been around for an age, 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 customers need more.  Our proprietors deserve more.

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