Hello, you lovely people, appraisals are changing.
They're not going to look the same way in March for a few people and likely
we're probably going to continue to see these changes happen here in the future.
So Fannie Mae has laid out their plan for a desktop appraisal.
So Fannie Mae is one type of conventional loan.
You can also get a Freddie Mac, conventional loan FameBit is
basically one of the government sponsored enterprises that makes
up the rules for conventional
loans.
And so what they want to do is transition from the traditional
appraisal to a desktop appraisal.
A traditional appraisal is we're in appraiser is going
to actually go to the house.
They're going to take a walk through it, look at the condition.
They're going to compare it to other similar homes and then come up with
a value for that home to make sure that if you're buying a $400,000 home,
it's worth $400,000, the bank doesn't want to lend a $500,000 on a 400,000
home
That's not a very good business practice.
So they're planning this change for loan submitted after March 19th.
And this is only for Fannie Mae conventional at the moment,
it's unclear Freddie Mac is going to follow suit, but most
loans are Fannie Mae conventional.
So what is a desktop
appraisal
This is when an appraiser uses data to find the value of a home, instead
of actually physically going through the home, taking a walk through the
home and it's called this because it's kind of, they can find the
value from their like desktop.
Instead of actually going to the house to take a look and find the value of it
based on the condition of the home itself.
And at first it sounds scary, but then we actually take a look into it.
It's really not as scary.
This is used on a lot of loans right now.
Now this originally started becoming a main thing when COVID first started
and lockdowns were happening, social distancing was happening and Fannie
Mae and Freddie Mac were trying to figure out how do we make sure that.
Appraisers don't have to go into a seller's home to find the value
of it for a buyer for a new loan.
And so they started doing more desktop appraisals and this proved to be
kind of a really good testing ground.
It seemed like COVID has kind of forced a lot of things to
change and people to realize like, oh yeah, we can work from home and
profitability still increases, or we can do desktop appraisals and it
still has a solid value of the home.
So COVID was kind of a good testing.
For this to happen.
And now they're pushing into that a little bit more of, okay,
well this works during COVID.
How do we do more of these?
Because this is a lot better for a lot of people
and something to note too, is appraisal waivers are
already common using similar data.
So an appraisal waiver is when you get a conventional loan and it goes
through the underwriting software and it basically says, Hey, you don't need an.
At all.
So a desktop appraisal is where you go through the underwriting software.
It says you do need an appraisal, but it can be a desktop appraisal.
So an appraiser doesn't have to go out to the home.
They can just find the value of the home based on a bunch of
different data that they put to.
Also data is more available.
Every single year, we get more and more and more and more data that it
can be used in the real estate world.
And this is helping the desktop appraisals as well.
So they can use things like tax records, past sales as well.
And by April last year, more than 15% of loans through conventional
loans use desktop appraisals.
So this is already a pretty common, like 15% is a pretty large amount
of conventional loans that didn't have a traditional appraisal.
A desktop appraisal.
Now let's talk about some general requirements here really quickly.
So this is only for one unit primary residence.
so this cannot be any condo.
So you have to live in the home for at least a year.
Also you have to have a 10% down.
so something to keep in mind, cause conventional loans do have a minimum
of 5% down, but you do need 10%.
Also, you have to have an approved, eligible loan in
the underwriting software.
This is something that you won't have access to, but your lender
will run it through the underwriting software to get approved eligible.
Basically this means you have to be able to be approved for a
conventional loan and you can not do any manual underwriting.
and then I want to talk a little bit about Fannie Mae does have like this
kind of FAQ guide that shows a little bit of some more detail about it here.
So first thing
that they say in here.
And let me zoom into this a little bit.
So it's easier.
so the software is going to tell the lender, Hey, this qualifies for a desktop
appraisal, they're going to order it.
The appraiser is then going to take that.
And then this shows what the appraiser's going to do.
They don't have to do a physical inspection.
They're going to use data from various sources, like the agents, the homeowner,
the builder, the appraiser files and through secondary data sources.
Right.
Now something else.
That's interesting to know.
I have, do you have this linked in the description?
If you want to take a look it says, do homeowner provided
photos required verification?
So it says photos can be verified using analysts listing or with
a live virtual walkthrough.
With the homeowner photos that are taken during a live walkthrough with
the homeowner are considered a appraiser observations during a live event and
do not require further verification.
It's kind of interesting because basically what they're saying here
is instead of the appraiser, going to the home themselves to take a look
at the condition of the home to find the value of the property, along with
other comparable homes and adjustments.
They're actually going to be able to do thank you that
like a FaceTime and see, okay.
Walk me through the home and let me make sure that condition matches.
and what's interesting here too, is the condition of the home.
Uh, most of the time isn't a huge factor in the actual value of the property.
Most of the time, the value gets validated for a home based on comparable homes.
So homes that are very similar to that one, they're doing an appraisal
on, and then they're going to, you know, they're going to find if this
one has three beds, two baths, I want to find another one with three beds.
Same similar square footage, similar features.
What did those sell for?
And that's what they're going to use to largely justify the value of this home.
And then the condition can slightly affect the adjustments
of the current home as well.
Something else they mentioned in here is a number nine at the bottom.
They said lenders can always opt out to order a traditional appraisal.
If the borrower wants one.
Or for other reasons at this point, it's a little unclear if
a desktop appraisal comes in the lower than the contract price.
So let's say you're low, you're buying it for 400,000 and let's say the
desktop appraisal comes in at 390.
It's unclear.
If you can then get a traditional appraisal to see if you can get basically
another shot at a higher value, maybe it could come in at 400 or higher.
It's unclear that something that you can do at the moment.
but it does look like lenders can use.
Or homeowners or home buyers can opt out if they want to, if they just want
to go with a traditional appraisal here.
So some pros is this is going to cost less than a traditional appraisal.
Traditional appraisal normally is going to run around 500 to $700
depending on your area and what kind of competition is in there.
So this appraisals should cost quite a bit less there because the appraiser
doesn't have to spend the time to go out and actually inspect the
also as more demand for appraisers increases, the cost of
appraisal says also increase as well.
my brother is a real estate agent and he was working with a client
and they had a quote for a $1,200 appraisal just because there
was such a shortage in appraisers.
And it was a little bit more of a rural.
So should helpfully hopefully bring down the cost of appraisals and then
also speed up appraisals as well, especially if you're in a more rural area.
Appraisers sometimes can take a week or two to actually even go
out to the home to be able to inspect it with a desktop appraisal.
This should be a lot quicker.
Something that's really important to note here is that it's this isn't
just like a system where an appraiser can go in and be like 300,000.
Got it.
That's it.
There also is a software.
That's validating it as well.
So the appraiser's going to submit their data, but lenders also have, have access
to a tool called collateral underwriter and kind of thinking of it this way.
Everyone's used to understanding that they're going to be underwritten
their, their risk for the loan is going to be underwritten.
So a lender is going to say how risky.
To lend to you, but they're also going to run a software that says
how risky is it to lend on this home?
And so it basically validates the appraisal using kind of a scorecard
to see how risky that appraisal is.
and so likely what's going to happen is there's going to be
multiple software checks to validate the data and make sure an appraiser
can't just put in whatever they want.
There's going to be a risk level adjustment with that, that already happens
right now with traditional appraisals is a traditional appraisal comes.
It actually gets underwritten through collateral underwriter
gets underwritten by a software.
usually goes through a manual review by a collateral underwriter
individual as well on top of the software.
And they're going to look at the risk and if they're uncomfortable with
what that appraisal says, they usually ask for revisions or potentially
another appraisal to be done.
This likely will be the same.
For desktop appraisals as well.
Usually the value isn't going to be overstated the algorithms on these,
anything for like an appraisal waiver, a desktop appraisal, and the
system for collateral underwriter is usually very conservative.
Anytime I look on the back end, if a traditional appraisal comes through and
I can see the collateral underwriter report it's, it's on a risk level.
And sometimes it's very interesting to see, like if it, what kind of
risk level it creates, um, because there's plenty of loans that have
gone through where the risk level is acceptable, but it's not the most.
I guess are the least risky, for the lender to take on.
So usually these algorithms are a lot more conservative and aren't
going to just validate anything.
So, because I know there's a lot of fear that a lot of people have is
as home prices continue to increase.
And then software just going to say yes to everything.
That's not how it's going to work.
There's going to have to be a lot of data that validates those home prices
rather than just the opinion or the subject opinion of an appraiser.
Also appraisers are extremely overworked right now.
It's difficult to become an appraiser.
So just like we're experiencing a shortage in homes causing
an increase in home prices.
A shortage in appraisers also creates an increase in appraisal price.
As well.
So some concierge desktop appraisal is usually lower than a traditional
appraisal that you might run into.
And so this could cause an issue.
If you're looking to buy a home and you want to buy it for 400,000 and the
desktop appraisal comes in at three.
Okay, well, now that becomes an issue because the appraisal is
short and I have a separate video on how to handle short appraisals.
also this isn't good for homes that are in poor or highly upgraded
condition, because again, it sounds like it's possible for the
appraiser to use photos from things like the MLS or like a live walkthrough.
But of course it isn't always going to capture or help an appraiser
understand fully what kind of upgrades are there or the full condition.
Of the home.
Um, and then also with more widespread usage, there could
be an opportunity for inaccurate data models to impact the market.
So for instance, if they roll out this program to more loans, it's, it's possible
that maybe they allowed too much risk in that could impact the market.
I don't see that happening, especially because there's already 15% homes
or for 15% of transactions that have already been using desktop appraisals and
they haven't seen any adverse effects.
Keep in mind too.
There's very little incentive for Fannie Mae to Overland on collateral.
So when the housing crash happened, and we saw overinflated
appraisals coming through, that was because of appraisers, not because
of the lenders themselves.
I'm sure there's.
I mean, it works both ways.
There, there was definitely shady characters on both sides.
What's happening now is because of all the regulations of restrictions
that are happening with appraisals and lenders is it really doesn't make
sense for someone like Fannie Mae to lend $500,000 on a $400,000 home.
Because if they if someone couldn't pay that back and they foreclose,
they're going to lose that money.
If they have to sell that home for $400,000 and they
lent, or they lend lint had.
Had loan.
I don't know how to say that they lend, they did lend $500,000.
They're going to take a bath on that.
And so it doesn't, it doesn't really make sense for them to overvalue home
through the data that they have here.
So it's going to be very interesting to see how
this plays out when we get more.
End of the year as we see more of these desktop appraisals happening.
All right.
So let me know your thoughts on this appraisal change.
If you are looking to connect with an agent, I have a link in the
description of an agent referral program with a home and money.
And what they'll do is we'll reach out to you, see what you're looking
for in an agent, and then connect you with an agent who can help walk
you through each step of the process.
They're going to stay in touch with your agent and with you to make
sure that you're taken care of as you're looking to purchase a home.
And if you also would like to connect with a lender at a referral program before.
With find my way home as well.
Um, and they, all of them have the heart of a teacher, all the
loan officers in that program, make videos just like I do.
So you know that they're going to help you through and help educate all
the kind of nuance and complex parts that come along with getting a loan.
So let me know in the comments, what you think about this appraisal change.