Buying a home is not for the fainthearted. There are steps to making an informed decision — from deciding on what you want, home appraisal, property inspection, loan application and approval, and closing and contract signing. While these processes are important, there is an essential one that determines if you’re getting approved for a mortgage or not — the home appraisal.
What is a home appraisal?
The home appraisal is a process of determining the market value of a property. This valuation process is usually carried out by a professional property appraiser using industry standards and protocols to determine the value of a property. A home appraisal enables the lending firm to define the amount of loan that you can qualify for based on the estimated value of the property. There are different types of appraisal: the full, drive-by, and desktop appraisal.
In this article, we’ll be diving into what is a drive-by appraisal, how it works, its advantages and disadvantages, and why it may be the best option for you. So without ado, let’s get to it.
What is a Drive-by Appraisal?
Just as the name implies, a drive-by appraisal is a type of property appraising process that only requires a professional appraiser to assess your property’s exterior. It’s another type of home appraisal that forbade the appraiser from entering your property.
In the conventional appraisal (also called the full appraiser), the licensed appraiser will have access to your property’s interior and exterior for a complete property evaluation. So the full appraisal relies on the interior and the exterior findings, a little research, and evaluation based on industry standards. But, in the case of the drive-by appraisal, the estimator relies mostly on research combined with the information from the analysis of the property’s exterior to determine an estimated home’s value.
Although the drive-by appraisal has been in existence for a very long time, it was popularized in 2020, during the COVID-19 global crisis, when social distancing and lockdown were implemented.
How Does a Drive-by Appraisal Works?
Based on our definition in the previous section, the drive-by appraisals only require the professional appraiser to drive by the property, evaluate its exterior, and determine the property’s value based on the evaluation of the exterior and online research. The drive-by appraiser relies on three factors: researches, exterior estimation, and evaluation based on industry standards. Do you desire to know how these three steps help determine the property’s appraised value? Here it is!
Once the lender recommends a drive-by appraisal for your property, the professional appraiser starts working in private. They run a background check on the property through online research, analyzing similar properties (performing comparative analysis), and interviewing the property owner. That process helps the appraiser to get an overview of what the property’s interior would look like. It also helps determine the price range of a similar property on the market.
Since this appraisal type prevents the appraiser from entering the property, the only way to know what the inside is like is by checking information about the property online and believing the information the homeowner reveals.
Once the appraisal is satisfied with their findings during the research and background check process, they’d have to visit the property. NO! Not to inspect the interior, but to check the exterior, the location, surrounding properties, social amenities, and to predict the future economic outlook of the community.
This step gives the appraiser a personalized view of what the property looks like. Driving by the property also exposes the appraiser to things that cannot be found online and on similar properties. Although checking the exterior may seem not to justify the property’s value, it helps the estimator derive a personalized result.
And finally, once the background check, research, and the property’s evaluation have been completed, the appraiser will have to go back to his work board to determine the final property analysis using industry standards and protocols. The final step will provide a cumulative evaluation based on the research and the exterior appraisal using industry standards.
Pros of Drive-by Appraisal
Based on our definition and explanation, so far, we’ve discovered that this appraisal type is based only on the evaluation of the property’s exterior, heavy research, and comparative analysis. While this seems odd, you should also understand that it has advantages.
What are the pros of a drive-by appraisal? Do you want to know? Here you go!
A drive-by appraisal is not intrusive in the sense that the appraiser is not allowed to enter your property. Although they’d inform you about when they’ll be evaluating the property, they don’t require you to be around for the process. You don’t have to inconvenience yourself and stay at home during the process. You only need to be aware of who is coming and when.
And even in some cases, you may not be informed about when they’d come. So, that means appraising your property won’t disrupt your routine. You may choose to be available or not available for the process.
The drive-by appraisal is also not expensive. Unlike the full property assessment that requires complete property evaluation, the drive-by appraisal only requires the evaluation of the exterior of your property. So, they’re cheap compared to the conventional ones.
According to Home Advisor, the average price of a full appraisal range between $300 and $500. While the average price range for a drive-by appraisal is between $100 and $150. So, it’s not expensive. Unfortunately, the decision for the type of appraisal for your property is not yours to make.
In full appraisal, the homeowner needs to clean and prepare their interior for the process. Why? The appraisal process requires the evaluation of both the interior and exterior. And if the appraiser can’t properly evaluate your property’s interior because of filthiness, it may impact the overall property evaluation.
Alternatively, in the drive-by appraisal, the professional appraiser is only required to evaluate the property’s exterior and based the interior evaluation on the information given by the homeowner and the online research conducted. So the homeowner is not required to perform any thorough cleaning and arrangement on the property, which will translate to less stress for the homeowner.
So unlike the complete assessment, it’s less stressful for both homeowner and appraisal. There is no need for cleaning and rearrangement for the homeowner. And for the home appraiser, there is no need for intensive evaluation — the appraiser can perform the duty without leaving their car.
Disadvantages of Drive-by Appraisal
While the drive-by appraisal is less expensive, less stressful, and not intrusive, it also has its disadvantages. So what’re the cons of the drive-by appraisal? In this section, we’ll discuss these disadvantages. After reading this, you’d have a balanced view of what you should expect and what you shouldn’t, even though the choice isn’t yours to make. So without ado, let’s dive in!
The result may not be Accurate
The conventional home appraising process requires the appraiser to analyze the interior and exterior, conduct research on the property, and evaluate the property based on industry standards. But drive-by appraisal only allows the appraiser to assess the property’s exterior.
What does that mean?
That means the appraisal process is based on information gotten from the homeowner and the data extracted from listing websites and databases. These are sometimes inaccurate.
For example, if the homeowner (intentionally or non-intentionally) provides inaccurate information about the property’s interior. If there are structural damages (like foundation, roof, and so on) that are not visible to the homeowner, the final result will be inaccurate. And because the appraiser doesn’t know what’s happening in the property’s interior, they can overvalue the property, which can be dangerous.
Since drive-by appraisal depends heavily on online research and data gotten from multiple listing services, it’s prone to inaccuracy. Information provided by the homeowner can be inaccurate, or the data gotten from online listing services can be outdated.
Why? Real estate is a fast-paced environment — everything can happen quickly. So, data gotten about the property last week can be outdated because of a recent transaction that influence the property’s price. And if the database isn’t updated often, data retrieved can be inaccurate.
Even if the data is up-to-date and the properties used for comparative analysis are the same, what says the state of both properties’ interiors are the same? Two houses with the same rooms, toilets, bathrooms, and similar designs may have different floor materials and kitchen countertops. Whereas if this information is not in online databases, an appraiser will compare both properties, which won’t provide an accurate result.
And because the appraiser is barred from inspecting the interior of your property, they may not know the situation of the interior. So, the comparative analysis done may not be accurate. And this can either lead to overvaluation or undervaluation of the property.
Since the appraiser does not know the property’s interior, no matter how accurate the overall appraisal result is, it’s still not close to the result that’d be gotten from a full appraisal. Inability to inspect the interior will make it easier for them to miss interior issues (even the obvious ones). Issues (like disrepair, cracks, a foundation problem, mold, etc.) should impact the final result.
But since the appraisal doesn’t know what’s going on in the property, they won’t factor these into the final result. And this would result in the overvaluation of the property, which is bad for the lender.
When is a Drive-by Appraisal Appropriate for Your Home?
However, after knowing what a drive-by appraisal is if you’re interested to know what factor defines the appropriate appraisal for your situation, here you go!
More Equity in your Property
If you have more equity in your property, the mortgage lender may recommend a drive-by appraisal to have an estimated value of the property. Why? The purpose of an appraisal is to know the property’s value and its future price valuation.
The home appraisal helps mortgage lenders to determine your risk level, the amount they can borrow you, and if the property’s future price can cover the mortgage cost if you eventually default on the loan. So if you have more equity in your property than the amount you want to borrow, there is no point in conducting a full appraisal on the property.
For example, if you want to dip your hand into the home equity line of credit for a renovation or improvement work, or you want to refinance your property and you have paid about 70-percent of your mortgage.
The lender will only conduct a drive-by inspection to have a sense of how the property looks, the location outlook, surrounding properties, and likely future development. That’s to know if in a few years the property will still be valuable as it’s now. And once this is done and the estimated result looks good, the lender can continue with the loan processing.
If Your Property is About to be Foreclosed
Another reason a mortgage lender can recommend a drive-by appraisal is when your property is about to be foreclosed. Like we already said, this appraisal type is only for a rough estimation of what the property price can be. The appraisal will be done to check what the property looks like and whether selling the foreclosed property will pay off the mortgage.
The first thing you should know is that you can’t decide on which appraisal type that’d be done on your property — the lender makes this decision. And whatever they recommend is final. Also, note that there is no industry-wide rule for making this decision.
So, as a refresher, a drive-by appraisal only allowed the appraiser to perform an exterior analysis of your property. The appraiser is barred from entering your property.
Moreover, a drive-by appraisal is less expensive, not intrusive, and less stressful. But it may be inaccurate, risky and data may be outdated. And finally, a drive-by appraisal is used when you have more equity in your property or when your property is nearing the foreclosure stage.
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