Are You Ready for Desktop Appraisals?
In 2022, Fannie Mae and Freddie Mac started allowing some appraisals in which the appraiser never sets foot in the listing. How is that possible? And what do you need to know to make your properties ready?
It would have been easy to miss. Maybe you were working with your buyer to win a bidding war, or perhaps you were presenting the 13 offers that came in for your seller that day. With the active market in early 2022, you may have missed the announcement that could change how appraisals work for some properties: Fannie Mae and Freddie Mac made certain purchase transactions eligible for an appraisal where the appraiser never sets foot in the listing. Even if you have heard about the 1004 Desktop appraisal, chances are you haven’t seen one … yet.
You may think that desktop appraisals were just an occasional anomaly during the early days of the COVID-19 pandemic, but the GSEs have been experimenting with desktop valuations for years. Fannie and Freddie are getting very comfortable with these types of valuations, so knowing how to navigate these appraisals is going to be important for appraisers and agents alike.
What properties are eligible?
According to the Fannie Mae Selling Guide, the lender may get the thumbs-up from underwriting for a desktop appraisal when the following criteria are met:
- One-unit property
- Principal residence
- Purchase transaction
- 90% or lower LTV.
Will the quality of the appraisal hold up?
The initial concerns that arise with desktop appraisals are always related to quality. The obvious question is: “How will the appraiser be able to appraise this house without seeing it?” The answer is data. The GSEs have done quite a bit of research and have discovered that when the appraiser is presented with quality data, the results are very similar to traditional appraisals, at least as far as mortgage risk is concerned.
Of course, collateral risk is not the primary concern of real estate agents involved in a transaction. Your concern is that an appraiser who doesn’t inspect the home in person will miss something important, which will impact the valuation and put the transaction in jeopardy. The truth is that appraisers who have geographic competency and know the market like they should will have no trouble producing a credible opinion of value, if provided with enough information.
This is where the real estate agent comes in. The system anticipates that the listing agent will be a critical piece of the puzzle in providing the appraiser with verifiable data of sufficient quality and quantity to produce that credible opinion of value.
What do 1004 Desktop appraisals require?
According to the Fannie Mae Selling Guide, 1004 Desktop appraisals require all of the same exhibits that are required for a traditional appraisal. That includes a floor plan with measurements. It is interesting to note that the floor plan is required to be more detailed than a traditional appraisal. The floor plan needs to include exterior measurements and interior walls. Traditional appraisals don’t typically include interior walls on the floor-plan sketches created by the appraiser. Other exhibits will include photos, lists of upgrades and updates, and many other exhibits already included in most listings posted in the local MLS.
How can you prepare your listing?
Should your buyer’s lender request a desktop appraisal, having the following items ready would allow for a near-seamless process:
Photos – This is likely the easiest part. The vast majority of listings already include extensive photos. It would be a good idea to have several supplemental photos available as well, which you might not want to post in the listing itself but that would be helpful to provide the appraiser. These photos would include:
- All sides of the home
- Mechanical systems (water heaters, HVAC, etc.)
- Every room of the house, including the utility room and all bathrooms
- Backyard, including patios, pergolas, pools, and other amenities
- Views, including undesirable views. The appraiser is going to know about them anyway, so it’s best to give an idea of how the view really influences enjoyment and use of the property. You can point out tall fences or other mitigating factors this way, too.
In most cases, photos will be better than virtual tours or videos, as they are more easily included in the final appraisal report or retained in the appraiser’s work file. Virtual tours and videos are great supplements, though. Of course, if you have invested in those, they will already be posted in the listing for all to see.
Floor plan/measurements – This may be part of the process you want done by a reliable third party, as DIY online floor-plan generation tools provide mixed results. In many cases, the floor plans themselves are beautiful; however, the measurements may include errors. Using an unreliable floor-plan generator could increase an agent’s or broker’s risk of a complaint or lawsuit. This is where appraisers can be very helpful. Some appraisers are becoming more proficient at utilizing the floor-plan-generation tools and can make sure that the end result is accurate. The cost for most listings is reasonable, and having accurate, ANSI-compliant square footage is often reason enough to pay for this service.
Updates/upgrades lists – While a photo may be worth a thousand words, a detailed written description provides context and accuracy. For example, if your listing has a remodeled kitchen, the photos will go a long way toward demonstrating that fact. However, if those photos are supplemented with a document that states that the kitchen remodel was done in 2019 and included Viking appliances and Carrara marble countertops, the appraiser has additional information that may not have conveyed clearly in the photos.
Third party data – While the guidelines allow the agent or seller to provide the appraiser with much of the required information, it should be noted that the guidelines require the appraiser to make the determination that the information is accurate, reliable, and sufficient to produce a credible appraisal. Providing thorough, consistent data will go a long way toward that goal; however, utilizing third parties is also helpful. If you hired a professional photographer, state that in the information you provide. If you had an appraiser take measurements and scan your home for the floor plan, let the desktop appraiser know. It is helpful to cite your sources.
Many real estate agents already provide information packets to appraisers, including the rationale and support for the price. The packet that you provide to a desktop appraiser would look very similar but would include the above-mentioned additional exhibits.
At the end of the day, much of the information needed for a desktop appraisal is information you have already gathered or that would be a great addition to your listing even if a desktop appraisal is never requested. Making sure that your listing is “desktop ready” ensures that your listing will impress today’s buyers who expect reams of data when making decisions. Sellers will also appreciate your level of detail and service, and will have confidence in your skill as an agent. That makes being prepared for a desktop appraisal a win for the buyer and a win for the seller, which means that it is a win for you as an agent, too.
Source: Texas REALTOR® Magazine