Appraisers Not Needed

May 27, 2018

For decades, now, we have been dealing with humans being replaced by streamlined processes or machines that end up making them dispensable. But what about eliminating the friendly face at the front door there to appraise your home? It appears appraisers may no longer be required to get formal property appraisals—a change that could save consumers hundreds of dollars and speed up the closing process as well.


As if slipped under the radar last year, a change in requirements took place in the Fannie Mae/Freddie Mac arena that has made waivers for traditional, in-person appraisals available. Instead of live appraisals, the two government-sponsored enterprises have started to use proprietary analytics and property data to value homes. That means no physical inspections of the home and no study of recent sales data in the area to come up with the valuation.


The usual in-person appraisal carries a price tag of about $500, according to Fannie. That cost is footed by the loan seeker, whether it’s a buyer getting a mortgage or a homeowner trying to refinance. Despite this new opportunity, however, not everyone is eligible for these appraisal-free loans, which typically require a down payment of at least 20%. And it’s not as if borrowers can request these faster-track valuations. Fannie and Freddie identify properties that they deem appropriate, favoring those that have had other recent appraisals.


Experts in the field agree that if the two government lending entities have a good basic inventory of information about the house, its value, and what it sold for, it is more likely to be identified for a property inspection waiver. However, if your house or the house you want to buy hasn’t been appraised in quite a while, your chances of getting that waiver plummets.


Reports tell us only about 5% of Fannie loans were no-appraisal mortgages in 2017. Freddie hadn’t tallied its number of no-appraisal mortgages, but estimates they will eventually account for between 10% to 15% of its new loans.


It’s altogether feasible that some buyers and sellers would rather skip the option of an appraiser-free transaction, however, even if it’s available to them. With many, it represents much more than saving a few bucks. How? In a recent article, NAR chief economist Danielle Hale admits that it has the potential to lead to buyers into overpaying. By the same token, if the appraisal comes in lower than the agreed-to price, buyers could have some room to negotiate. In the current market, however many buyers are unable to negotiate anyway, even if the appraisal came in too low.


The article reveals the in March, 42% of buyers had contingencies in their purchase contracts allowing them to back out if the appraisal came back too low.


Refinances, however, are different animals. When refinancing solely to get a lower rate and nothing else has really changed about the property itself, it just makes sense to go appraiser-less whenever possible.


So what about the human factor in appraising properties. How much weight should it be given? The article cites a Sacramento-based appraiser that Fannie and Freddie’s computer programs “cannot smell 20 cats living at the property” or judge the pride of ownership in the immediate neighborhood.


Despite this new change, appraisals are still considered the gold standard for real estate evaluation, so even if you are offered the option of saving that $500, you may opt to pass on it.




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