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The ramifications of COVID-19 on the real estate and mortgage industries have been vast, ranging from record low interest rates to confusion over states’ varying “shelter-in-place” guidelines. Concerns over the virus have led to necessary creativity in the appraisal process.
Before the current pandemic, appraisals were highly structured and consistent, thanks to the fact that appraisers, for the most part, were required to perform interior and exterior appraisal inspections. These in-person, interior and exterior appraisal inspections were as uniform as they could be, given differences in properties and locations, and were performed on the FNMA Form 1004 (Single Family Residence), Form 1073 (Condo), Form 1025 (2-4 unit multi-family) and Form 1004C (manufactured home).
Exterior-only appraisals, using the FNMA Form 2055 and Form 1075 (Condo), included having the appraiser drive by the property to view the exterior and take photos while providing a value. These appraisals were not performed heavily prior to the current pandemic other than in the Servicing or Portfolio Valuation roles.
Desktop appraisals, as opposed to the above, have been more nebulous. They also have largely been a cheaper product. Historically speaking, a desktop appraisal is loosely defined by an appraiser doing an analysis of the subject and comparable value with no physical inspection of the property. Later variants would often pair that analysis with an exterior or even interior/exterior inspection provided by a non-appraiser entity, such as a real estate agent or home inspector. Although FNMA has a pilot program for a desktop appraisal (1004P) they are not widely accepted. Some companies offer a desktop appraisal that is not FNMA approved for portfolio lenders and some HELOC business.
There is no uniformly accepted definition of a desktop appraisal, and pricing has varied widely, so the approach has been more “wild west” in nature. For this reason, desktop appraisals have been viewed by some with skepticism, with perceptions ranging from a jaundiced view that the appraiser may have spent a few minutes looking at comps and third-party photos, stamped on a valuation, and called it a day...to risk aversion to rely on a valuation prepared by someone who didn’t see the actual property.
Unfortunately, with COVID-19 and shelter in place restrictions, many appraisers are either forbidden from doing internal appraisals, or they’re not comfortable doing so for their own health and safety reasons. But home purchases and refis, thankfully, continue despite the economic challenges we’re facing, and the industry has been forced to adapt to this new reality.
Desktop appraisals in the COVID-19 era are much more comprehensive than the historical definition outlined previously. For this reason, it’s important for lenders to understand the differences between the type of valuation required now and the historical variant.
Most significantly, the GSEs, HUD and FHLB have all issued guidance on how desktop appraisals are to be performed. First, they must be completed on the standard, generally accepted UAD (Uniform Appraisal Dataset)-compatible appraiser forms, which are the 1004, 1073 and 1025 forms. Yes, appraisers will analyze all the data available to them about the property. Yes, they will research comps as usual. Interior and exterior “inspections” could be in the form of a video conference with the owner, MLS or seller assisted pictures. After all, if an appraiser signs their name on the appraisal, they’re liable for its accuracy and the risk for an inaccurate report is still primarily on them.
Fannie Mae and Freddie Mac still prefer a traditional appraisal when possible, but if there is a COVID-19 concern, they will accept a desktop appraisal on purchase money transactions. FHLB guidelines are similar - they’ll allow a desktop appraisal if there are health concerns.
The FHA also prefers traditional appraisals, but they’ll accept desktop appraisals too. Unlike the above GSEs, the FHA will not accept “drive by” appraisals using a Form 2055/1075.
Due to the additional requirements and liability of providing the desktop appraisal on UAD forms and due to the level of work required, many appraisers are charging the same cost for a desktop appraisal as they would for a traditional report.
In areas where a large portion of the appraiser population is either in the COVID-19 age risk category or is not performing interior inspections out of an abundance of caution, the remaining appraisers performing full inspections are typically extremely busy. This causes extended turnaround times and, in some cases, pricing premiums.
Lenders are advised to be aware of this and plan accordingly. Many credit union and banking clients in the Midwest and South have already converted to a 60-day closing period for purchases and 90-day closing for refinances. We recommend lenders plan similarly until the crisis abates and more appraisers return to active appraising status.
Triserv has been fortunate to maintain national average turnaround times between 6.5 and 7.5 days in most markets in the USA for Q1 2020. Despite unprecedented volume, the massive influx of refinances, and the paucity of appraisers in many markets, during the March/April timeframe Triserv has maintained a 9-10 day turntime average during this shelter-in-place period. We attribute this to the strength of our national appraiser network, and our reputation in the appraisal community as an organization that pays appraisers quickly, pays well, and has on-staff appraisers working with them for lender concerns.
For any lender utilizing AMCs, or managing the process in-house, we strongly recommend TMC Lenders “stress test” your AMC or appraisal process for the following: