New Year, new appraisals, new problems

Castles in the Sand

Welcome to 2019, which promises to bring even more far-reaching technology into our lives. The personal touch and simply interacting with other humans are eroding away on a daily basis. Shopping online has replaced the local retailer who knows your name and Facebook has replaced real friends. Now the real estate industry can add another electronic “improvement.” Maybe.

Federal regulators have proposed making traditional appraisals unnecessary for some new mortgages which are originated for less than $400,000. This would replace the current $250,000 new mortgage exemption already in place not requiring a flesh-and-blood appraisal. These traditional licensed appraisals would be replaced with an “evaluation” generally prepared with a computer program using artificial intelligence, algorithms and even drones to establish the value of the property.

Keep in mind the purpose of an appraisal is to ensure that the estimated value of the property supports the purchase price and, therefore, the mortgage amount. The proponents of an electronic system indicate the benefits of speeding up the home sale process and reducing costs by hundreds of dollars.

Even if this proposed electronic system becomes the norm, most home loans in the $400,000 or lower range are bought by the mortgage agencies of Fannie Mae and Freddie Mac or other federal agencies like the Veterans Administration (VA) and the Federal Housing Administration (FHA), which still require full blown appraisals, not electronic ones. The Dodd-Frank financial overhaul, as a result of the financial crisis in 2010, did address electronic appraisals requiring quality control standards, which as of yet have not been established. In addition, the National Association of Realtors estimates that two-thirds of home sales in the United States sell for $400,000 or less, a substantial part of the market should electronic appraisals become accepted across the board.

As any real estate professional will tell you, there is a love-hate relationship with appraisers. They love them when the numbers justify the selling price and they hate them when they don’t include features that, in the Realtor’s and buyer’s opinion, justify the price. On Anna Maria Island, where there isn’t too much consistency in housing, these different opinions are a real issue.

The job of a licensed appraiser is much more than comparing comparable homes to the subject. It involves, or should involve, taking into consideration the interior of a property as it relates to the condition and significant renovations, as well as the structural integrity of the property. Professional appraisers have always considered their job as more of an art than a science, and, not surprisingly, they are not in favor of appraisals being churned out without the human touch.

All of this being said, I do believe there are property transactions that would benefit from the time-saving element that electronic appraisals would provide. There are many condos in Manatee County and certainly all over Florida that for the most part are the same in location, square feet and amenities. There may be some variables in condition but structurally virtually none. Also, banks that are attempting to evaluate foreclosed properties could replace a long-standing procedure called “drive-by” evaluations performed by licensed Realtors to determine a value. Electronic evaluations could be a real help to lenders in moving the foreclosures along in getting them sold.

If you’re longing for the personal touch, better find a time machine and go back to the 1960s. Or, you might start by asking Alexa to turn herself off. Hope you have a great year.