We had a borrower come to us a few weeks ago to refinance b/c she needed cash to repair the inside of her home that had been badly damaged by a burst water pipe and the resulting flood. B/c of the extensive damage, our only option was a 203k (rehab) loan that was not appealing to her. So she instead obtained an equity line from a bank that only required a “drive-by” (exterior only) appraisal and thus remained oblivious to the interior damage.
There is a 3,300 sq foot home on a 3/4 acre lot near my house that has been on the market for $1.6 million almost six months. An “Automated Valuation Model” (AVM) would readily appraise a home of that size for $1.6 million. But, the home is on a steep hillside with a dysfunctional floorplan and no yard at all. There is also road noise from a nearby arterial through street. A visiting appraiser would instantly know why the house is not worth $1.6 million and why the house is not selling.
A busy and loud Freeway (the “680”) runs through the area where I live and work. Depending on how they are situated on the hills surrounding the freeway, houses the same distance from the freeway can either get blasted by non-stop freeway noise or sit in total tranquility. A visiting appraiser would be able to assess the noise (“adverse external influence)” factor while an AVM obviously could not.
I thought of all of these stories this morning when I read this article in the WSJ about new regulations that would allow “the majority of homes to be bought and sold without being appraised by a human.”
The new regulations would only apply to homes selling for $400,000 or less, but the cap keeps increasing. B/c appraisers are often in short supply and b/c appraisals themselves are expensive, many mortgage and real estate professionals would love to see appraisal requirements loosened up.
For tract homes in good condition on flat lots with no external influences, human appraisers may not be necessary. But for the thousands upon thousands of homes that are a bit more complex, we need human beings.
My other concern with eliminating human appraisers is the potential for fraud. People can do all kinds of things to a home that an AVM will never see.
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