In a vast—and largely digital—lending landscape, big banks and FinTechs often hog most of the financial glory. They’re more visible and have slick advertising that suggests they’re the best and safest...
COVID-19 has created unique challenges for the home appraisal process—nationwide shelter-in-place orders and social distancing guidelines have made it difficult for appraisers to do on-site inspections, which means that turnaround times and appraisal fees have increased due to COVID-related backlog.
In March, citing the extraordinary circumstances that the country is facing with the ongoing spread of the coronavirus, the Federal Housing Finance Agency announced that they would be directing Fannie Mae and Freddie Mac to ease their standards for both property appraisals.1 Even if your institution services your portfolio of loans, you may want to consider alternative appraisal options as well.
The resulting industry solution has been the adoption and acceptance of two alternative appraisal options: desktop appraisals and hybrid appraisals. In this blog post, we’ll discuss how these alternative appraisals are being used to help the home loan process stay on track in 2020.
What Are Desktop Appraisals?
As the name implies, an appraiser can conduct a desktop appraisal without ever leaving their computer. A licensed appraiser does market research, pulls comps, does the analysis, and determines how much the subject property is worth — without ever visiting it. They then use tax, MLS records, and other available resources to guide their decision.2
Data from recent home sales in the area is an important measure for appraisers to consider during this time, as the offer price should be close to the neighborhood’s standard and not rely on being able to justify a higher home price based on amenities they cannot see to assess the value of, like a remodeled kitchen or pool.
What Are Hybrid Appraisals?
“A hybrid appraisal is a valuation of a property completed by an appraiser who has never visited the property. Hybrid appraisals must be completed by a licensed or certified appraiser, and can include the assistance of a third-party, such as a real estate agent, property inspector, or a real estate appraiser.”3
A hybrid appraisal is conducted like a desktop appraisal, but the appraiser is also armed with additional information to help them determine the home’s value. These resources might include:
Photographs of the exterior and interior of the house by a third party
Someone else’s interior inspection
Driving by the outside of the house and getting interior inspections from someone else
Getting a tour of the interior via video-chat with the homeowner4
Hybrid appraisals are an elegant solution to social distancing guidelines and they also tend to speed up the appraisal process, especially in rural areas or markets where there is an appraiser shortage. One appealing aspect of hybrid appraisals during the coronavirus is the flexibility it offers appraisers. Hybrid appraisals will consider a real estate agent, inspector, or another’s appraiser’s interior inspection. In the event an inspection cannot be performed due to the pandemic, borrower photos are another option that is becoming more acceptable today.
What Data is Used to Conduct a Hybrid Appraisal?
“Both general data and specific data is collected during a hybrid appraisal. General data includes all real estate information on a macro level, ranging from market value to social and economic forces affecting the listing. Conversely, specific data focuses on a single property which can include details about the property and local market characteristics. These two types of data are collected through the appraiser’s first-hand knowledge and other information collected by third-party sources. But, hybrid appraisals rely heavily on information conducted by third-party sources.”3
Many appraisers are conducting drive-by appraisals as part of the hybrid appraisal process. While inspecting the property from the outside doesn’t offer a full picture, it indicates to the appraiser whether the home seems well cared for, how much curbside appeal it has, and the quality of the neighborhood in which it is situated. To make the process more efficient and convenient, SWBC Lending Solutions offers a mobile app that allows borrowers to instantly send interior and exterior photos to lenders, making the lending decision-making process faster. The application can also reduce or eliminate fraud with the integrated GPS feature that gives the exact geo location where pictures are taken.
While the coronavirus has created unique challenges for the industry, accurate property value information is still key to minimizing lending risk. For efficient, accurate valuation options that keep your financial institution fully compliant, rely on SWBC’s suite of valuation services. Learn about SWBC Lending Solutions' Valuation options by visiting our website.
Chuck Mureddu has more than 30 years of combined mortgage lending experience, including appraisal management, institutional risk, loss mitigation, and whole loan exit and securitization strategies. As the Chief Valuation Officer for SWBC Lending Solutions, Chuck is responsible for all valuation policy and process, quality assurance, and regulatory compliance.