Lowering Appraisal Requirements: Appraisal Waivers, Desktop Appraisals + more

 

While you may have seen or heard about Appraisal Waivers, did you know there are other options to avoid the appraisal?

Fannie Mae is currently in a “Test” period for reducing the appraisal requirements for some home sales.

We’ve discussed in this blog why it is not a good idea to skip the appraisal, but Fannie Mae seems to think it is.

This is a four step process with four different levels of reporting options. It is based on several factors including:

  • Credit Scores
  • Percentage of Down Payment
  • Automated Valuation Models (AVM’s)

 
appraisal waivers - desktop waivers

1st Level - No Appraisal

The first level is this: Fannie Mae would require absolutely nothing, no inspection, no appraisal NOTHING. This is commonly referred to as an Appraisal Waiver. While I don’t think this option will happen often, it would likely end up with extensive fraud.

What if a group of individuals decided to collude to sell properties that had been destroyed or run down for high prices knowing that there would be no verification of the assets, no inspection and no appraisal?

Over the past 30 years I have heard of schemes that one would not like to think someone would commit like Realtors, lenders and appraisers working together to sell properties for 20% above market value so that it looks like the buyers have a 20% down payment and then refunding the 20% back. Several people went to jail for this exact thing several years ago.  

 

2nd Level - Third Party ‘Inspection’ For Measurements + Quality, But No Appraisal

The second level is this: a third party completes an inspection of the property to measure the home, determine the level of quality and condition, with no appraisal required. This inspection does not have to be done by an appraiser or trained individual and may or may not be reliable in regards to quality, condition or other aspects.

Fannie Mae, Freddie Mac and FHA have for years stated that a trainee appraiser that has completed appraisal education and worked under the direct supervision of a certified residential or certified general appraiser is not allowed to complete a property inspection for an appraisal without the supervisor being on site and watching what the trainee is doing.

So I find it very interesting that they are thinking that a non trained individual that has not been through the schooling of an appraiser and has not been trained by a certified appraiser are now qualified to complete these inspections.  

 

3rd Level - Desktop Appraisal

The third level is to be a bifurcated or “Desk Top” appraisal that would be conducted an appraiser - but the appraiser would not visit the home to inspect it, or visit comparable’s - and would rely on the inspection completed by an untrained and unlicensed individual.

My concern with the desktop appraisal is that the appraiser would have no way of knowing if the information provided was accurate, and would not have the advantage of driving the neighborhood to assist in determining if there are adverse or beneficial aspects to the home and location, i.e. homes next door with trash, cars, disrepair, etc.

While this may save some time in the loan process, I don’t believe it would be significant and would lead to problems in the future.  

 

4th Level - Traditional Appraisal

The fourth level is a full traditional appraisal - which I believe is the only option that truly protects both the public and the lending institutions.

As an example, a recently completed appraisal on a well constructed home that was in very good condition sold for $640,000, however, extensive research and analysis determined the actual market value to be $560,000.

The buyer was putting $300,000 cash down. The buyers credit score is not known but likely in the upper ranges, and it is possible under these circumstances that they could have had the appraisal waived and would not have known that they paid $80,000 to much for their home until something happened (illness, lost job, transferred, etc.) and had to sell the home shortly after the purchase. An inspection alone - even by a qualified appraiser - would not have shown the disparity between the sales price and the actual value of the home.

That’s why when buying or refinancing a home, you want to know without a doubt that you're receiving a fair deal and will not be “underwater” with your home loan. 

If Fannie Mae says you don’t need an appraisal, consider getting your own independent appraisal anyway. A proper assessment of your home is far more important in the long run than some money that you may save immediately. 

 

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