What Is A Drive-By Appraisal, And How Does It Work?

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.

What Is A Drive-By Appraisal Vs. A Full Appraisal?

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.

How Does A Drive-By Appraisal Work?

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.

• Research: Because they don’t inspect the inside of the home, appraisers conduct extensive research to inform their opinion of a property’s value. Appraisers may begin by looking at comparable sales – or comps – which are recently sold homes in the local housing market that are similar to the subject property in size, condition and features. Appraisers often also research current listings and other MLS data, tax records, public records and information disclosed by the homeowner.
• Observation: A licensed appraiser visits the property in-person to photograph and take detailed notes of the home’s exterior condition and features. They also explore the neighborhood to perform drive-by inspections of comps and determine trends such as whether home values are increasing or decreasing, how well other homes are maintained, and the overall appearance of the neighborhood.
• Valuation: Once the appraiser has completed their research and observations, they compile all their data and photos into the exterior-only appraisal report to arrive at their estimate of the home’s fair market value.

When Do Drive-By Appraisals Make Sense?

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.

• Foreclosure: If a home is at risk of foreclosure, a lender might order a drive-by appraisal to see what the home looks like and determine whether selling the property will pay off the mortgage loan.
• Home equity loan or HELOC: Because more equity equals less risk, lenders are more likely to order a drive-by appraisal for a home equity loan or home equity line of credit (HELOC). Depending on the amount of equity in the home, a drive-by appraisal may also suffice when homeowners need an appraisal for refinancing their existing mortgage.

What Are The Advantages And Disadvantages?

Let’s assess the benefits and drawbacks of drive-by appraisals.

Pros 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.

• They’re more convenient. Homeowners don’t have to stress about taking time off work or making other arrangements to be home during a drive-by appraisal. They also don’t have to worry about staging, cleaning, finishing home improvements or prepping their interiors in other ways since the home appraiser won’t be assessing the inside of the house.
• They’re quicker. Drive-by-appraisals typically take less time to complete because the appraiser is only inspecting the property’s exterior. Also, no appointment has to be made for when the homeowner will be home.
• They cost less. Because drive-by appraisals are quicker and have fewer requirements, they’re typically cheaper than full appraisals.

Cons Of Drive-By Appraisals

While drive-by appraisals provide some benefits to mortgage lenders, homeowners and borrowers, they can carry the following risks:

• They’re less accurate. Drive-by appraisals typically aren’t as accurate as full appraisals because appraisers don’t have access to all the information about a property. For example, without stepping foot inside the home, appraisers may not be able to consider interior improvements, which could result in a lower appraised value than if the appraiser had seen the improvements in-person.
• Property data may be outdated. When conducting a drive-by appraisal, licensed appraisers must rely more on research than observations. If MLS property data, public records and online sources are outdated or inaccurate, it could have a negative effect on the appraised property value.
• Interior issues may be omitted. A property valuation may also be inaccurate if an appraiser can’t inspect the home for structural problems, water or termite damage, mold, disrepair or other interior issues.

What Are Some Other Appraisal Options?

The following types of appraisals may also be available with a home loan, home equity loan, HELOC or refinance.

Desktop Appraisals

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.

Hybrid 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.

Traditional Appraisals

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.

Drive-By Appraisal FAQs

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.

Does the FHA approve of drive-by appraisals?

In some cases, drive-by appraisals are allowed for FHA loans, depending on the circumstances and lender requirements.

How do drive-by appraisal costs compare to traditional home appraisal costs?

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.

Are drive-by appraisals used for refinances?

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.

The Bottom Line

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.