With so much chatter out there about different kinds of home appraisals (especially since the pandemic has increased some of these appraisal types and decreased others), we thought we’d write something about the different home appraisal types and their pros and cons.
While we’re not addressing appraisal waivers here, we’d like to point out that any of these appraisal options is likely better than a waiver, which doesn’t provide any data for future comps at all.
Full Home Appraisal
A full home appraisal includes a licensed appraiser inspecting both the interior and the exterior of the home and property. A full appraisal includes:
- Taking pictures and measurements of the entire property
- Providing commentary on the materials used and the condition of the home
- Comparing the home to similar homes in the area to determine value
A traditional, full appraisal is what most lenders have always used to determine a home’s value prior to funding a mortgage. It’s usually thought of as the most accurate, complete way to determine a property’s value.
Pros of a Full Home Appraisal
- You and the bank get a very accurate assessment of the home’s value, since nothing on the inside or outside of the home is likely to be missed with such a thorough assessment by a licensed appraiser.
- A thorough, complete appraisal means that there is another good comp for home appraisers to use in the future.
- Appraisers are busy, and fully appraisals slow down the mortgage process, which is getting faster and faster all the time thanks to technological innovation.
- Full appraisals are more expensive, since the appraisers are doing more work and have to set up an appointment and drive to and from the property.
- During a pandemic, entering a home is not the safest option for either the owner or the appraiser, and some appraisers have stopped doing in-home valuations completely, further exacerbating the time it takes to have an appraisal completed for a mortgage.
Drive-By, or Exterior-Only, Appraisal
Exterior-only appraisals, or drive-by appraisals, are just what they sound like—the appraiser literally drives by the property and takes exterior pictures of the home. The appraiser does not go inside the home at all.
Then, the appraiser uses available real estate records on the property to come up with the home’s valuation. For a purchase, the appraiser may use listing photos to verify features and condition of a home.
While these have become common due to the pandemic, they’re becoming less common as the pandemic subsides and it’s becoming safer to go indoors again.
- Nobody needs to enter the home to complete the appraisal, making scheduling and safety during a pandemic a lot easier.
- Often done in refinance situations where the owner has a lot of equity in the home, so they can really speed up the refinance process.
- There can be a lot inside the home that gets missed, and those things could substantially affect the valuation of the home.
- A drive-by appraisal may be a less reliable comp for future appraisals.
- If using photos supplied by a borrower, the photos may not be optimal for truly determining condition, and misrepresented or even fraudulent photographs could artificially inflate the home’s value.
- The appraiser may determine that there isn’t sufficient information to do a desktop appraisal, and they may say that a full appraisal needs to be done on the home, potentially causing delays.
- Sometimes this even takes longer than a traditional appraisal because the appraiser has to do more research.
With a hybrid appraisal, a third party who is not a licensed appraiser goes into the home and gives information back to the licensed appraiser who completes the report. This third party could be a real estate agent, an appraisal trainee, a home inspector, or someone else. The licensed appraiser never goes to the property. The appraiser does gather data from public records, the MLS, engineering reports, and other sources to learn more about the property while implementing the information from the third party.
- There is an actual person who is not the homeowner completing an interior inspection.
- There is less work for the appraiser to do, and the appraiser can often get done much faster than a traditional full appraisal.
- An appraiser doesn’t control the narrative, so important things may get missed. Information the report is based on may be misleading or inaccurate.
- Hybrid appraisals can’t be used in all circumstances.
- Appraisers are often reluctant to put their name on something where much of the information came from a third party, so they can require a lot of additional research.
And now we come to our favorite type of appraisal, which might be cheating a bit because this isn’t currently a type of appraisal that’s really being done in the market. However, we’ve been working hard behind the scenes to develop this technology, and we really believe it’s the perfect solution to all of the cons mentioned above.
- It’s easier to schedule (can be done through an app), and the appraiser doesn’t have to spend time driving.
- The appraiser is present for the virtual appraisal, ensuring that any photo or video is good quality. The appraiser can also ask for more information as needed.
- It’s a high-quality valuation process that provides good information for future comps.
- Appraisals will get done much faster, making the entire process of getting a mortgage faster (especially as mortgage technology continues to improve).
If you have any questions about the different types of appraisals out there (or what Kairos is doing to address some of the challenges we mentioned and also how we do things differently), give us a call at (425) 967-3794 or reach out here.