A home appraisal determines the value of a property, which isn’t always the same as the sales price. Lenders often require appraisals for real estate transactions – whether you’re buying or refinancing a home – to confirm that the property is worth at least the amount of your loan.
But appraisals can be a bottleneck in the mortgage process. Drive-by appraisals can save time and hassle, especially for refinancing or home equity loans. Here’s what you should know if a drive-by appraisal is an option for you.
What Is a Drive-by Appraisal?
A drive-by appraisal is a simplified version of a traditional home appraisal. While a traditional appraisal includes a licensed real estate appraiser visiting the home for a visual inspection of the interior and exterior of the home along with an analysis of the neighborhood and comparable sales in the area, a drive-by appraisal drops the interior inspection component.
How Does a Drive-by Appraisal Work?
As with a traditional appraisal, a licensed real estate appraiser considers factors such as the neighborhood, nearby comparable sales and the exterior of the home to determine a value for the property – but the appraiser doesn’t go inside for a visual inspection to complete a drive-by appraisal.
The appraiser will take photographs, perform an exterior inspection of the home and neighborhood, and make use of sales data and neighborhood information, according to Fannie Mae.
The appraiser may also use interior real estate listing photos to determine the home’s value, especially for home purchases, says Dave Krichmar, a mortgage banker in Houston. Using listing photos for appraisals is less common for refinancing and home equity loans, as photos may be out of date, Krichmar says.
“An appraiser will use MLS sales data to come to the value, which is the same for drive-by, full or desktop appraisals,” says Keith T. Bodungen, a real estate appraiser and owner of KTB Real Estate Services in the Austin area.
When Can You Use a Drive-by Appraisal?
Whether you can use a drive-by appraisal may depend on the lender, property and loan type. For example, a lender may be more willing to allow a drive-by appraisal for a home equity loan than a new purchase. Drive-by appraisals may also be used when a home is in danger of foreclosure, according to Rocket Mortgage.
A property located nearby lots of similar homes that have been sold recently may be a good candidate for a drive-by appraisal. But if there’s anything special about the home’s interior, such as if it has fresh paint and new carpets or a recently renovated bathroom, a full appraisal may be a better choice.
During the coronavirus pandemic, Fannie Mae, Freddie Mac and government agencies such as the Department of Veterans Affairs temporarily changed certain policies, including by making it easier to use exterior-only appraisals. But those temporary appraisal policies have ended.
How Accurate Are Drive-by Appraisals?
A drive-by appraisal provides a good estimate of a home’s value, but there’s a lot appraisers could miss by not doing a full inspection, says Bodungen. For example, the appraiser can’t see the interior condition of the home and quality of materials.
“They don’t know if the kitchen has been upgraded or if you have new hardwood floors rather than 20-year-old carpet,” Krichmar says.
When an appraisal is inaccurate, that could cause upside down or inflated values that can come back to haunt the borrower, says Bodungen. With an appraisal that comes in low, buyers may have to decide to make up the difference between the sales price and the value if the seller won’t come down on price. Otherwise, the loan application could be rejected.
What Are Pros and Cons of Drive-by Appraisals?
Drive-by appraisals can offer speed, convenience and a potentially lower cost but may have less information to accurately determine a value for the property.
An appraiser who doesn’t have to physically inspect your home could complete your appraisal faster. That’s appealing if you’re trying to get to the closing table quickly.
Cost is another potential benefit of drive-by appraisals. “In theory, it should be cheaper, as the appraiser is doing less work,” says Krichmar. Less work may translate to a lower fee, but the cost can vary.
And if anyone is living in the home, a drive-by appraisal avoids the hassle of appointments and access. As a result, a drive-by appraisal can be especially convenient if you’re refinancing or getting a home equity loan.
But again, accuracy is a concern with drive-by appraisals. “A drive-by appraisal won’t be as accurate as a traditional appraisal because they don’t have all the information in front of them to make an accurate assessment of the value,” says Bodungen.
What Are Alternatives to a Drive-by Appraisal?
Depending on your situation, a traditional appraisal, desktop appraisal or appraisal waiver may be more relevant to you than a drive-by appraisal.
- Traditional appraisal: A regular appraisal may cost more and take longer but can offer the most thorough evaluation.
- Desktop appraisal: Beginning March 19, Fannie Mae will add desktop appraisals as an option for eligible loans through its Desktop Underwriter system. In many cases, desktop appraisals will replace drive-by appraisals, according to Krichmar. This type of appraisal also uses data to determine a property’s value, but drops the exterior inspection, and the appraiser can contract out exterior photos. This can cause more details to be missed. “The feel of the neighborhood, a view or a power line easement may only be caught if you’re doing an actual inspection,” says Bodungen.
- Appraisal waiver: In limited cases, it may be possible to get a loan with no appraisal at all. An appraisal waiver can be determined by the lender’s automated underwriting system and may occur when there’s information available from an eligible previous appraisal.
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