I was reading the paper online this morning, like I do everyday and came across an article where the writer spoke to an appraiser and was asking questions about what they do. One of the questions caught my eye right away....
Q: You mentioned that some big banks are doing away with appraisals. How do you think the role of appraisers will evolve in coming years?
A: A direct federally regulated lender has a lot of leeway if a loan is under $250,000. The bank can decide not to get an appraisal if it wants. A couple of years ago one of the largest banks in the country had a meeting with its local approved appraisers. The bank said it had made a business decision to forgo appraisals in about 50 percent of its loans.
Depending on other factors such as creditworthiness, tax assessments and even an AVM (automated valuation model -- "computer" appraisal like those on Zillow), it could bypass the appraiser. The reason the bank gave for this decision was it wanted to lower borrower's closing costs to compete better with other lenders. When asked about increased losses due to not having an appraisal, the answer was that the bank had priced these additional losses into the loan.
I believe that appraisers will still have an important function in helping lenders make proper loan decision in the years to come. In addition, we will still be needed for many other reasons, including the settlement of estates, the transfer of assets into a trust, division of assets for a dissolution of a marriage, relocation appraisals, estimating market value for possible sale, etc., etc.
Ok, am I the only one that thinks the banks are *STUPID* for using comps off Zillow instead of sending a real person out there to look at the home? How does Zillow or any other AVM know what upgrades these homes have to offer? Usually they don't. They only way to get an accurate idea of what the home has to offer, is to actually go look at it. A lot of the information on Zillow is not even correct, and they want to base comps off of incorrect information? Good grief!!
The reason the bank gave for this decision was it wanted to lower borrower's closing costs to compete better with other lenders. When asked about increased losses due to not having an appraisal, the answer was that the bank had priced these additional losses into the loan.
So then the buyer is paying for a "possible loss" throughout the entire loan instead of just paying the roughly $350 for an appraisal upfront? Is the buyer made aware of this? Is the buyer even given an option?
Anyone know what "large bank" this is that is doing away with their appraisals? I have never heard of such a thing until now!
What are your thoughts on banks doing away with appraisals?