UPDATED: Oct 21, 2024
Your home is more than just a building. It is the place to call your own, a labor of love, and a place to share moments with family and friends. A home is many things to many people, but it is also a valuable asset. So, when deciding to sell or refinance, you’ll need a certified professional to thoroughly examine the condition of the home, compare it to similar homes in the local housing market and ultimately use a careful process known as a home appraisal to put a value on your property.
Property valuation – the process of estimating a property’s value – may seem like too important of a task, then, to entrust to something called a drive-by appraisal. But in addition to being a safe alternative to traditional, in-person appraisals during the COVID-19 pandemic, drive-by appraisals have proven to be a quick, reliable and less costly method for determining the appraised value of a property.
Let’s examine what drive-by appraisals are, how and when they work, and what advantages and disadvantages they offer to lenders, homeowners and potential buyers.
A drive-by appraisal simplifies the traditional home appraisal process. During a traditional appraisal, or full appraisal, a licensed real estate appraiser conducts an interior and exterior inspection of the home. However, during a drive-by appraisal – or exterior-only appraisal – a licensed appraiser inspects just the outside of the home.
Drive-by appraisals are also referred to as summary appraisals because the appraiser relies heavily on other sources to determine the market value of the home. These sources may include public property records, multiple listing service (MLS) sales data and photographs of the home’s interior from prior listings of the property.
With the exception of the interior inspection of the home, an appraiser will typically consider the same factors during a drive-by appraisal as they would for a full appraisal.
Below are the general stages of the drive-by appraisal process that an appraiser works through to create an in-depth appraisal report.
Mortgage lenders rely on appraisals to determine the market value of a home, so they need home appraisals to be as precise as possible to ensure they’re not at risk of lending a loan amount that exceeds the property’s worth. For this reason, many lenders don’t allow drive-by appraisals for new mortgage loans.
However, a lender is more likely to order a drive-by appraisal for some properties, loan types and circumstances. Let’s look at some of those scenarios below.
Let’s assess the benefits and drawbacks of drive-by appraisals.
Depending on the circumstances, drive-by appraisals offer the following advantages to lenders, homeowners or potential home buyers, or all of the above.
While drive-by appraisals provide some benefits to mortgage lenders, homeowners and borrowers, they can carry the following risks:
The following types of appraisals may also be available with a home loan, home equity loan, HELOC or refinance.
Desktop appraisals rely almost exclusively on MLS information, public records, comps and other data points to estimate a property’s value. Unlike other appraisals, however, desktop appraisals don’t inspect the exterior or the interior of the appraised property.
At this time, Rocket Mortgage® doesn’t offer desktop appraisals.
Similar to other appraisals, a licensed appraiser conducts all the research in a hybrid appraisal. However, instead of visiting the home in-person, they contract out a third party – who isn’t required to be a licensed appraiser – to assess the physical property and report back their findings, which the appraiser then includes in their appraisal report.
Full appraisals involve a single appraiser who researches the property and inspects both the exterior and interior of the home. Lenders have historically preferred these types of appraisals, especially for home purchase loans.
Home sellers may also prefer full appraisals if they’ve made significant renovations and improvements to the home’s interior or the floor plan is more spacious than it appears from the outside.
Now that we’ve discussed the drive-by appraisal, let’s review some of the frequently asked questions associated with this type of property assessment.
In some cases, drive-by appraisals are allowed for FHA loans, depending on the circumstances and lender requirements.
Drive-by appraisals generally cost significantly less than full appraisals. HomeAdvisor reports that drive-by appraisals are typically $100 – $150, compared to $600 – $2,000 for full appraisals.
The more equity a homeowner has in their home, the less risk they present as borrowers, so lenders have become more lenient about allowing drive-by appraisals for refinances, including cash-out refinances.
While drive-by appraisals tend to be less accurate than traditional appraisals, they’re still conducted by professional, licensed appraisers who carefully examine all the available data to estimate the most accurate fair market value. Drive-by appraisals can also save lenders, homeowners and borrowers valuable time and money.
However, homeowners who’ve completed interior renovations or other home improvements that have increased their home’s value may still prefer a traditional appraisal so they can tap into their home’s equity with a cash-out refinance.
Are you looking to buy a new home or refinance your mortgage? Start your mortgage loan application online with Rocket Mortgage today to speak with a Home Loan Expert and see how much you qualify for.
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