FHA Extends Relaxed Appraisals: What This Means For Buyers and Sellers

Magnifying glass over wooden homes

Many aspects of the real-estate-purchase process have changed, including appraisals. In an effort to keep agents, buyers, sellers, and appraisers safe, the Federal Housing Administration, or “FHA,” has announced an extension of its “relaxed appraisal requirements.”

When the coronavirus was first making its way across the country, in early March of 2020, the FHA announced the would allow for appraisals that are faster, safer, and don’t include actually going into the house. It was believed this would slow the spread and reduce exposure to appraisers, agents, home sellers, buyers, and everyone else involved in the sales process. 

What are Relaxed Appraisal Requirements?

A traditional appraisal can be fairly in-depth, and it requires an appraiser to enter a home, go through all the different rooms, and review hundreds of aspects of a property. They need to look at the quality of the flooring, reliability of shingles, size of the house, and much, much more. This is not exactly a practice that allows for social distancing, and if someone has been infected with the coronavirus, they could easily spread the virus by simply walking through the home. Even if people are gone, and social distancing is recognized, the virus could, conceivably, be deposited in the home and picked up by others.

Hoping to avoid this possibility, organizations started allowing for relaxed appraisals. With this option, appraisers can review the home and create a specific value using only exterior reviews and online information. This options was created in March of 2020 and later extended to the end of August. But now it has been extended all the way through the end of October 2020.

What are Desktop-Only Appraisals?

A desktop appraisal is completed, as the name suggests, right from an appraiser’s desk. There is no interior inspection, no going through the house with a clipboard, no measuring rooms and checking electrical outlets. The appraiser stays in their office and nothing is done in person.

So how could they possibly reach an accurate assessment of value? By using data that is already available online. It’s not as detailed, and there is more room for error, but by using information found on online records, listing sites, and even mapping websites, appraisers can reach a fairly accurate value.

Only a licensed, certified, and trained appraiser can perform a desktop appraisal, so they have a high level of accuracy and respectability, despite the fact that no one is actually visiting your home.

Appraisals conducted entirely from the exterior can provide a reliable value estimate.

What are Drive-By Appraisals?

A drive-by appraisal is similar, as the appraising professional does not enter the home. They do actually travel to the property, they simply don’t enter the house. Instead, the analysis is conducted from the interior of the property. Using information that they derive from the exterior, a high-quality professional is able to deliver a reliable value of the home.

Are There Downsides?

Of course, with this type of appraisal, the professional is not able to get a completely accurate assessment, and certain details could be missed. Because the appraiser does not enter the interior, they are not able to see things like mold growth, damage to the home, rot, and signs of poor maintenance, which would drop the value of the home. For this reason, desktop-only and drive-by appraisals could be beneficial to the seller.

Also, the listed square footage of a home is not always accurate, so appraisers don’t have the chance to make accurate measurements. The house could be larger or smaller than the listed square footage, so this could benefit the buyer or the seller.

Why Not Just Drop the Appraisal Requirements?

With all of these issues, and with the obvious flaws in relaxed appraisals, why not just quit appraisals altogether? Because lenders still need to know that the home they are borrowing against has value. Therefore, they need at least some type of appraisal to establish this value. They don’t want to loan $500,000 on a property and, if they have to repossess it, find out the property is only worth $300,000. (That’s an extreme example, but it makes the point.)

In their opinion (and in the opinion of government agencies) a potentially-flawed or incomplete appraisal is better then no appraisal at all. To put it bluntly, something is more than nothing.

What Do Relaxed Appraisals Mean to Buyers?

Buyers will benefit from this option because it speeds up the appraisal process and allows appraisers to complete a thorough valuation of the home in less time. Obviously the overall time it takes to complete the appraisals is lessened, but the waiting period may also be reduced. Instead of waiting a couple of weeks for your appraisal, you may be able to complete an appraisal in a few days. This is not guaranteed, but it is a possibility.

There is also the fact that the home you are buying has fewer people going through it before you take possession, which may reduce your chances of coming into contact with the coronavirus.

For buyers, there is a concern that certain elements could be missed, and they may be left with a home that has damage, rot, mold, wear, or a variety of issues that impact the comfort or livability of the home.

What Do Relaxed Appraisals Mean to Sellers?

The same basic advantages that are delivered to buyers are enjoyed by sellers. By potentially speeding the appraisal process, the overall sales process is sped up as well, which could mean that the closing could come quicker. With a relaxed appraisal, you may be able to sell the home faster and move to your next property in less time.

It’s also likely that you’ll be coming and going from the property after the appraisal. Therefore, having fewer people coming into your house could increase overall safety. This extension is, after all, an effort to increase safety, so it seems like a reasonable benefit.

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