Detailed guides on various real estate financing methods.

Financing Guides

Electronic appraisals are about to become a lot more common under new lending standards set to begin in March. They’ll be welcomed by borrowers and lenders alike because of speed and lower cost, but are they really a good replacement for old-time valuations?
“Like electric-powered vehicles, electronic valuations have been with us for some time and are only now gaining a visible market share<a></a>,” said Rick Sharga, Executive Vice President with <a href="https://www.realtytrac.com/">RealtyTrac</a>.
“For instance, perhaps a decade ago, you could buy a home and use a traditional appraisal to obtain a mortgage. At the same time, lenders could order an electronic appraisal review, an extensive electronic look at the property, the appraisal, and the appraiser that allowed them to see possible red flags before originating a mortgage.”
<h2>Millions of property data reports</h2>
Each sale, re-sale, financing, and refinancing creates a property data report describing the property involved. Added together, there is a vast and growing volume of data that combined with careful analytics can lead to better and better valuations, what are generally called  an “automated valuation model” (AVM)
Fannie Mae announced in 2018 that it would waive appraisal requirements for many one-unit properties. Instead, such properties could be valued using proprietary analytics to sift through the 31 million property data reports Fannie Mae had in hand.
Why would lenders favor electronic valuations? Fannie Mae mentioned several advantages.
Speed. “An appraisal waiver,” said Fannie Mae, “can shorten the loan origination process by eliminating the need to obtain and review an appraisal.”
Reduced lender liability. “Exercising an appraisal waiver offer relieves the lender from enforcement of representations and warranties on the value, condition, and marketability of the property.”
Cost. “An appraisal waiver,” said Fannie Mae, “provides a no-cost alternative to an appraisal, while eliminating the expense of appraisal-related delays in the origination process.”
So, if Fannie Mae offered an appraisal waiver, lenders had a choice: they could elect to use traditional appraisals or rely on Fannie Mae’s massive data stash to value a property – reports that were quick, represented less liability, and were free.
<h2>The pandemic changed everything</h2>
Covid-19 and its various off-shoots accelerated the move toward electronic valuations. With a deadly virus on the loose, many appraisers – with good reason – did not want to enter homes, and many owners – with equally good reason – were unhappy about strangers in their midst.
Despite such fears, there were homes to finance and refinance, with the result that new appraisal standards evolved. For instance, in 2020, in the midst of the pandemic, HUD announced that it would allow exterior-only appraisals for most FHA single-family mortgages.
<h2>New appraisal standards, March 2022</h2>
New options are about to change appraisal norms once again. Beginning in March, the two largest mortgage buyers will permit three types of property valuations. Here’s what Fannie Mae and Freddie Mac say about the new valuation options:
Hybrid. An appraisal assignment consisting of a desktop appraisal for which the scope of work includes reviewing a recent interior/exterior property data report.
Desktop. An appraisal assignment for which the scope of work does not include field work by the appraiser and does not include reviewing a recent interior/exterior property data report.
Traditional. An appraisal assignment for which the scope of work includes an interior and exterior personal, onsite inspection of the subject property completed by the appraiser who signs the appraisal report, and the effective date of the appraisal is the date of inspection.
<h2>Who benefits – and who doesn’t?</h2>
The new system – with its growing mountain of property information – is likely to lower costs and speed the process.
<a href="https://www.homeadvisor.com/cost/inspectors-and-appraisers/hire-a-property-appraiser/">HomeAdvisor</a> reports that “the average single-family home appraisal costs $349 with most people spending between $313 and $420.” In contrast, <a href="https://www.fool.com/knowledge-center/desktop-valuation.aspx">The Motley Fool</a> says “a desktop valuation typically costs between $75 and $200.”
Speed is also likely to improve. There are appraiser shortages in many areas, a reality that delays valuations. With electronic valuations, appraisers can likely complete more assignments, thus easing delays.
<h2>Concerns</h2>
While cost and speed are big issues – when are they not – the use of electronic valuations raises several problems.
First, call ‘em what you will, electronic valuations are a clear challenge to professional appraisers, a potent step toward a reduced reliance on humans. It’s not that data points and computational magic will replace all appraisers, rather the new system will pull revenue out of the profession. That will lead to fewer new appraisers, making the shortage issue more acute, thus increasing demand for electronic valuations.
Second, appraisal waivers will not be available for all properties, something that will concern real estate investors and those buying or refinancing real estate in general. For instance, traditional appraisals may be required for properties with two or more units, when the LTV is more than 90%, and for the purchase of second homes, investment properties, condo units, and manufactured homes.
Third, more electrons equal fewer physical checks. With a traditional appraisal, according to the new standards, you get “a complete visual inspection of the interior and exterior areas of the subject property.”
For a hybrid appraisal, there can be a “physical inspection of the interior and exterior of subject property by a third party or an appraiser. Or, a “virtual inspection of the interior and exterior of subject property by a third party or an appraiser using tools such as Skype, FaceTime, or others to allow remote viewing.” Translation: an appraiser may never show up at the front door.
Lastly, for a desktop valuation, there is no physical examination of the property.
Is the lack of a physical exam of both the inside and the outside of a property a problem for borrowers? Perhaps not, but until a video can show such things as cat odors or deferred maintenance it’s an issue to consider…

Man Filling Real Estate Appraisal Form

Financing

Coin stack step up graph with red arrow and percent icon, Risk management business financial and managing investment percentage interest rates concept

A Guide to Foreclosure Financing and Refinancing

Buying a home

Financial Planning Is Key To Prevent Your Home to Go Into Foreclosure

Appraisals To Become Quicker & Cheaper – But Not for Everyone

Electronic appraisals are about to become a lot more common under new lending standards- here are some benefits and concerns regarding them

Appraisals To Become Quicker & Cheaper – But Not for Everyone - RealtyTrac

Comment

https://www.realtytrac.com/wp-content/uploads/2023/07/appraisals-1.jpg

Resource

RealtyTrac

Manuel is an expert in all things real estate, including buying and flipping homes.

https://secure.gravatar.com/avatar/017e3eb9b2b2815da5c9c544f2b2cb568f9de91a1fb2c8168ec7e918e3971cee?s=96&d=mm&r=g

Manuel Martinez

Tips and guides on how to buy your next home

Home Buying Guides & Tips

iStock-1211819040

Resources for purchasing property and homes

Home Buying

Construction Site of New Homes

What to Know About Buying a Second Home

home-selling-stress

What’s More Stressful: Buying Or Selling A Home?

Luxury Home

What Type of Home Do You Live in? We List The Most Common Property Types

Abstract blur supermarket

Should You Buy Investment Real Estate Where You Shop?

Arizona Foreclosure Laws

Foreclosure Process Overview Both judicial (in-court) and non-judicial (out-of-court) foreclosures occur in Arizona, although judicial foreclosures are not common in the state. The typical timeline for an non-judicial foreclosure is at least three months from the date the first notice of foreclosure sale is filed to the date of the actual foreclosure sale. Judicial Non

Arizona Foreclosure Laws - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2013/04/iStock-1211819040.png

Investing Strategies

Houses in the snow

Tips and tricks for home owners and real estate investors looking to invest in homes

Real Estate Investing

Selling Your Home? Here’s What You Need to Know About Closing Costs

Closing costs are often overlooked when considering the budget for a home. Read up on what you need to know about closing costs.

Selling Your Home? Here's What You Need to Know About Closing Costs - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2023/08/Houses-in-the-snow.jpg

Olga is a renowned expert in foreclosure and real estate, known for her in-depth knowledge and strategic approach to managing distressed properties. As a writer for RealtyTrac, she provides valuable insights and advice to help readers navigate the complexities of the real estate market.

https://secure.gravatar.com/avatar/cd612bf4ca88d95abdb7116b1f26bc0df6e4ba2697c97bc579f52c5bf507c110?s=96&d=mm&r=g

Olga Ronis

Massachusetts Foreclosure Laws

Massachusetts Foreclosure Laws - RealtyTrac

https://www.realtytrac.com/wp-content/uploads/2023/08/real-estate-auction-gavel-scaled.jpg

Appraisals To Become Quicker & Cheaper – But Not for Everyone

$944,658

$765,912

$268,101