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When someone is looking to buy a home, a mortgage lender will ask a simple question. What is the house worth? This is where appraisers come in to independently determine the value of the property.
Since the start of the pandemic, however, appraisers have put price tags on homes without ever setting foot on the property. Originally a temporary emergency measure, it looks like remote assessments are now here to stay.
In March 2020, the Federal Housing Authority authorized optional “office assessments” in response to the health risks of COVID-19. Home appraisers could decline an in-person inspection if enough online data was available about the property. Mortgage giants Fannie Mae and Freddie Mac accepted them temporarily. And they have become more frequent since.
While some questioned whether the remote ratings might be accurate, they kept deals on track at a time of wariness over in-person interactions.
“They [Fannie and Freddie] understood that they needed to keep the money flowing and without the evaluation, [it] was going to stop mortgage lending,” said Sandra K. Adomatis, vice president of the Appraisal Institute.
Last month, Fannie and Freddie began accepting office appraisals nationwide for all eligible transactions.
The real estate industry trusts remote appraisals
In a traditional appraisal, a mortgage lender hires a state-licensed appraiser to perform an in-person inspection detailing the exterior and interior conditions of the home, with documentation in the form of photographs, as well as a floor plan that determines the living space of the property.
Some properties correspond to a cookie cutter; others are more unique, especially in rural areas or urban towns that have historical relevance.
But the industry is convinced that today’s technology is more than enough.
“I think with the databases they have, which are built, have improved their overall visibility in the market, I think they can mitigate some of that risk,” said Pete Mills, senior vice president. residential policy and engagement at Mortgage. Bankers Association.
While it may seem preferable to have a real person walk into a home to determine its value rather than use data, some experts say traditional in-person appraisals are often wrong.
During the 2008 housing crisis, appraisers were forced to assign a favorable price tag to the lender, which often led to homes being appraised at a much higher cost than they were worth.
“You want independence. You don’t want someone with a horse in the race controlling the rater and the rating system,” said Mike Calhoun, president of the Center for Responsible Lending.
Technology Could Help Address a Looming Evaluator Shortage
Another reason why more homes are likely to be appraised remotely: the shortage of appraisers available to travel to the field.
“This is an aging population of appraisers, so there’s an imbalance between the need and the number of appraisers who can serve the market,” Mills said.
Office appraisals are always performed by state-licensed appraisers. Because they are faster to process than in-person visits, the remote option can solve the labor shortage problem.
Yet, given that office valuations are in their infancy, it’s too early to tell how they will affect the real estate industry. “There’s no telling where it will come out and where it will end,” Calhoun said.