Are desktop and drive-by appraisals helpful or harmful? In short, maybe, it depends, sort of … “I’m busy right now, can I have ketchup with that?”
Frankly, there’s no simple answer to the question of desktop and drive-by “goodness.” They are what they are, as in both have potential benefits and risks. The key is to pair them with the right circumstances and effective risk controls.
For background, desktop appraisal is a general term that describes real estate appraisals completed by licensed appraisers without visiting the subject property. Drive-by appraisals/exterior-only appraisals generally refer to real estate appraisals that include an appraiser’s in-person observation of the subject property from the street but exclude an actual on-site or interior inspection.
Recently, desktop and drive-by appraisals temporarily replaced many interior inspection appraisals as a necessary response to health risks and quarantine orders related to the COVID-19 pandemic. This adaptation was necessary to protect the well being of homeowners and appraisers, while keeping the mortgage process moving; allowing professional appraisers to continue as the trusted backbone of property valuation.
I’M A LOAN OFFICER, HOW CAN I BE SUCCESSFUL WITH DRIVE-BY AND DESKTOP APPRAISALS?
If you’re a loan officer, the availability of desktop and drive-by appraisals during the social distancing and stay at-home requirements associated with COVID-19 are a net positive. There are a few primary reasons for this:
• Desktop and drive-by appraisals have enabled the mortgage lending process to continue and the mortgage industry to continue receiving appraisals completed by professional appraisers.
• Desktop and drive-by appraisals are generally less expensive than appraisals requiring an interior inspection, thus saving your borrower money.
• Desktop and drive-by appraisals are generally completed more quickly than appraisals requiring an interior inspection. Since there is no inspection, the complication of an appointment is removed, which may result in improved turn-time for receipt of the appraisal. Also, for a refinance, this may save a borrower the inconvenience of taking time off for the appointment.
A downside of desktop and drive-by appraisals is that the appraiser typically lacks current and personally verifiable details about the property’s interior. On a purchase transaction, this is somewhat mitigated by recent pictures and/or video tours of the interior of the home which are typically available from websites or the local multiple listing service. Even so, such pictures are not equivalent to a personal inspection since they represent limited and curated views of the interior.
Unfortunately, on a refinance or purchase transaction without current online photos, the appraiser is often left to rely on public record data (i.e. county/town assessor) for information about the subject property. Since public record data is typically sparse on details about the interior condition, quality and features, the appraiser may be unaware of significant updating, renovation, and other items important to property value.This limitation may result in a borrower being dissatisfied with the appraisal and feeling that important updates and/or features were left out.
Fortunately, there are things a loan officer can do to reduce the risk of borrower dissatisfaction with desktop or drive-by appraisals, particularly on a refinance transaction where the appraiser is unlikely to have photos of the interior from a third party.
1. Be candid with your borrower about the limitations of the drive-by or desktop appraisal. Using the information above, educate the borrower on why the desktop or drive-by is important, while explaining the downside of an appraiser not having the opportunity to personally observe the interior of the home. This will help avoid surprises as all parties are moving forward with eyes wide open.
2. Ask your borrower to prepare a list of features,updating, renovations, additions and quality items they would like the appraiser to know. Items such as crown moldings, cathedral ceilings,hardwood floors, granite counter tops, custom cabinets and solid wood doors are some examples of items worthwhile to point out. The list could be provided to the appraiser at the time the appraisal is assigned. Of course, without verification/ validation, the appraiser is generally not going to rely solely on the borrower’s representations.
3. Advise that the appraiser may be willing to accept photos or video supplied by the borrower for consideration. The borrower and appraiser can connect and arrange for the photographs or video. There are many current technology solutions being advertised for this purpose. The appraiser should be able to assist the borrower in identifying the right solution.
If the borrower believes the property cannot be sufficiently appraised without an interior inspection, it may make sense to delay until one can be performed, or there may be an appraiser that can do the interior inspection without delay.
I’M AN UNDERWRITER - WHAT SHOULD I WATCH FOR ON DRIVE-BY AND DESKTOP APPRAISALS?
Underwriting a desktop or drive-by appraisal is fundamentally similar to underwriting a “full” appraisal. As such, there are a couple of additional checks that may be helpful to the underwriting process.
• Look up aerial pictures and street view pictures typically available on platforms such as Google Maps, Bing Maps or county geographic information systems. Compare the pictures in the appraisal report to the online pictures. Make sure the photographs appear to be the same house; look for potentially adverse or beneficial locations or views; look for potentially adverse or beneficial adjacent land uses (e.g. commercial, industrial, park, etc.).
• Using a search engine, attempt to find a current or prior listing of the subject property by typing in the address. Often, current or prior listings will include interior and exterior photographs of the subject property, along with details about the size, age, features, upgrades,outbuildings, etc. Compare this to the information in the appraisal report to ensure consistency. If a current listing depicts renovations, updates, above or below average property condition or quality that does not appear consistent with the ratings for the subject in the desktop or drive-by appraisal, you may consider asking the appraiser whether (and how) this information was considered.