A new proposal to reduce the number of homes requiring in-person appraisals could save home buyers and those attempting to refinance hundreds of dollars, and speed up the process. This may sound like a well-timed holiday blessing, but appraisers who would be affected by the change say it could also pose all sorts of problems.
The plan would require human appraisals only for purchases of homes costing $400,000 and up. The current threshold is $250,000. It’s likely that automated evaluations would take their stead. This is significant because it would be the first increase since 1994, when median home prices were around $130,000. They’ve now more than doubled to a median $295,000.
The proposal was developed by the Federal Deposit Insurance Corp., the Board of Governors of the Federal Reserve System, and the Office of the Comptroller of the Currency. It could take months, if not years, to be approved.
If approved, it could save buyers and homeowners attempting to refinance about $500, which is the average cost of an in-person appraisal. Skipping the appraisal visit would also likely lead to quicker closings.
The proposal “could provide meaningful burden relief from the appraisal requirements, without posing a threat to the safety and soudness of financial institutions,” said a press release issued by the FDIC.
But it would not apply to loans sold or guaranteed by the US government. They include the Federal Housing Administration, Department of Housing and Urban Development, and the Department of Veterans Affairs mortgages as well as those guaranteed by Fannie Mae and Freddie Mac.
What Are The Downsides?
The problem is, these nonhuman appraisals are not as reliable. Automated valuation models are when you throw a lot of data in and flip the switch to spit out a value. The problem with that is AVMs are wildly inaccurate. This is because these programs don’t know if sellers have a meth lab or 100 cats in their home, or if they are hoarders. All of these things can drag the value way down.
Also is homeowners have kept their properties in tiptop condition, these models can overestimate how much these homes will fetch on the open market. That sets unreasonable expectations for the sellers who will be reluctant to part with their properties at a lower price, leading them to sit on the market even longer.
