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The drive-by appraisal
By TERESA BURNEY
© St. Petersburg Times, published August 5, 2000
You've signed a contract to buy the home of your dreams, but now you're worried that in the heat of negotiations you agreed to pay too much.
No worry, you think. The lender would never let you overpay for a house. If the contract price is too high, the bank's appraiser will say so and the deal won't go through, you figure.
Don't bet on it. The appraiser your lender hires may do no more than drive by and take a picture. Sometimes the lender won't even ask the appraiser to give an estimate of the home's value, measure it or go inside.
The new trend toward partial appraisals is called "streamlined appraisals." The trend began when Fannie Mae, a quasi-governmental company that buys loans from banks and other lenders that issue them, said it wouldn't require full appraisals in some cases.
Mark Simpson, director of single-family mortgage business for Fannie Mae, says the streamlined appraisals reduce costs and time for consumers eager to get home loans. They can take half as long and shave 70 percent off the traditional cost of an appraisal, which typically is $250 to $300.
Fannie Mae executives say they're not worried about such cursory appraisals because they have faith in their computer systems.
Sophisticated computer models in its Desktop Underwriting system analyze each home loan to determine which ones don't need full-blown appraisals. The system looks at comparable properties and determines if the sale price is in the ballpark. Simpson said that is as good as a traditional appraisal.
Lenders and appraisers say a borrower's credit history also has a big effect on whether they need a full appraisal.
But while Fannie Mae is comfortable that its system is okay to preserve its investment in a property, Simpson is quick to say consumers shouldn't rely on such appraisals to verify that they are paying the correct price for a home.
"We highly recommend that the potential homeowners make an independent assessment of the condition and value of the property," he said. "I think there may be some confusion in the marketplace as to the purpose of the appraisal."
Even though the home buyer pays for the appraisal, it is done to satisfy the lender and investor who buys the loan from the lender. They want to know their investment is safe: They don't really care about yours.
If the house price seems okay and you have a good credit history, the lender figures you'll make the payments even if you pay too much for the house.
Plus, if you put down a lot of your own money down on the home, the lender figures it will be able to get its money back if you default.
Also, home prices have accelerated at such a quick pace that if you slightly overpay for a house, the real value should catch up by the next year.
But what if values fall? Buyers could end up with a house worth less than they paid, critics point out.
Even before drive-by appraisals became acceptable, consumer advocates urged home buyers to get an independent home appraisal.
"The appraisal is there for the bank, the lender, the creditor -- not the consumer," said Margot Saunders of the National Consumer Law Center. "It's simply a business decision for the lender."
Appraisers say their business has not dropped off much because of the streamlined appraisals. In most cases, lenders still ask for full-blown reports, complete with a list of comparable properties and what they sold for, measurements of the home, interior inspections and an assessment of what they think the house is worth.
At most, the streamlined appraisals save borrowers $100 to $200, appraisers and loan officers say. "In my opinion, get an appraisal, for gosh sakes," said Wally Wheatley of Icon Mortgage Corp. in New Port Richey. "It's not that much money."
"You have got some people who are spending some $200,000 on a house and the most I think they are going to save on a full appraisal is a maximum of $100," said Francois "Frank" Gregoire, an appraiser for Gregoire and Gregoire Inc. in Pinellas County. "Why in the world would anybody really want to quibble about $100?"
Gregoire gets a little nervous when lenders ask him to simply drive by a house, take a picture of it and check out the neighborhood.
Even in cookie-cutter neighborhoods, home values can vary widely, appraisers say.
With the drive-by assessment, "it could be a shell inside," Gregoire said. "If a borrower is thinking that it is a good accurate appraisal, I think that they are sorely mistaken."
And consumers might not know that the appraisal is a cursory one.
"If (consumers) knew the value of their house was estimated by a machine, I don't think they would put a lot of weight in that," Gregoire said.
Consumer advocates suggest that borrowers ask what type of appraisal will be done and get copies of it. The lender is required to comply.
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