How COVID-19 is Affecting Appraisals
We already know that this coronavirus is changing the face of real estate and the longer we are in lockdown, the more dramatic the change could be but it's also affecting home appraisals. The appraisal is an important process in the mortgage application and its changing rapidly as well. In some situations, appraisers have hazmat suits to walk through high-end properties, and in some cases, homeowners are connecting by virtual meetings and face time to give tours to appraisers who are no longer visiting homes in person.
The mortgage giants Fannie Mae and Freddie Mac are skipping appraisals altogether for certain borrowers just to keep the real estate market afloat. While most mortgage companies won't tell you exactly who qualifies for a mortgage without an appraisal, many agencies and brokerages have expanded their appraisal waivers. Most of these properties have lower loan-to-value ratios and no other red flags.
In the past, only about 10% of borrowers actually qualified for appraisal waivers but now that is up to nearly 33%.
So who qualifies for this appraisal waiver?
Obviously, if there's no appraisal, the borrower doesn't have to pay for one, which varies from about $450-$650. Because of this, the buyer doesn't need to schedule an appraisal or worry about the estimated value of the home coming in too low. Most homeowners and homebuyers are not unhappy about this but of course, the appraisal industry will be hurting as it will cause a reduction in their business.
Unfortunately, there's no definitive checklist about who qualifies for an appraisal waiver, and Fannie Mae and Freddie Mac have not given any clear guidelines. Credit scores, borrower's assets, and loan-to-value ratio are usually the most important variables. If it's fairly easy to see that a home is valued appropriately based on similar properties in the area and sold homes, chances are we could do an appraisal waiver. Those borrowing less than 70% of a property's value have the best chance of an appraisal waiver.
Properties that are a little more difficult to value our older homes and those in mixed-use neighborhoods where you can't get a good idea of similar properties or comparable homes.
The process is changing rapidly and each transaction is different so communication between all parties is essential for what works for the buyer and seller. Wells Fargo has stopped ordering interior appraisals for all properties except new construction. Drive-by appraisals and Zoom meetings have sufficed in a lot of situations.
"While a video walk-through isn't the same as an in-person visit, it can give some peace of mind to appraisers who worry that optimistic valuations might lead to legal issues down the road.
"There's a difference between believing something is correct and knowing something is correct," Garber says. "If you're going to sign your name to this thing, you're going to have spend more time on research."" [Source]