By HOLDEN LEWIS
Scripps Howard News Service
In the quest to make home loans cheaper and quicker, lenders don’t order labor-intensive, full appraisals as often as they used to. A lender might request anything from a full-blown appraisal to a “drive-by” inspection by a real-estate broker. Thanks to computer technology, some home equity loans don’t require a visit to the house at all.
You probably won’t have much say in how the lender verifies the property’s value, but it doesn’t hurt to ask.
“I’m sure if a customer says to the bank, ‘I’d like to have this as cost-effective as possible,’ they’ll try to order the least expensive appraisal they can,” appraiser Allan Bredice says.
Home purchases and refinances almost always require at least some type of appraisal conducted by a licensed appraiser, although they don’t always require an interior inspection. It’s the world of home equity loans where the computer has made the most inroads.
In many purchases and in some equity loans, a licensed appraiser conducts what is called a complete summary appraisal. The appraiser inspects the inside and outside of the house, takes pictures, looks at three comparable nearby properties and produces a report with a location map, a drawing of the house’s layout and supporting details to justify the appraiser’s opinion of the house’s value.
To save time and money, the mortgage industry came up with the “2055 form,” in which a licensed appraiser prepares a condensed analysis. A computer program decides whether or not a 2055 form appraisal requires an interior inspection.
When it comes to home equity loans, licensed appraisers aren’t always involved in the process. Occasionally a lender will order a BPO, a broker price opinion, in which a real-estate broker looks at a house and, based on the broker’s knowledge of home sales in the neighborhood, estimates the value.
After BPOs comes the world of high technology, where experts extol AVMs and skeptics warn about GIGO, garbage in, garbage out.
AVMs, or automated valuation models, are computer programs that estimate house values based on factors such as the size of the building and the lot, location, amenities and sales prices of nearby houses.
In a way, an appraiser is doing the same thing in a much cruder fashion.
Lenders mostly use AVMs to support home equity loans for relatively small amounts and with low loan-to-value ratios.
Some believes lenders will come to use AVMs for most purchases, too at least for typical properties. In other words, not a house on a cliff overlooking the Pacific, but for the typical house in a big subdivision where values tend to be concentrated, or a condo where the floor or the view is the differentiating factor.