The U.S. housing market is booming during the coronavirus pandemic in spite of a little-noticed chokepoint: There just aren’t enough property appraisers to visit and evaluate all the houses changing hands and being refinanced.

Hoping to find at least a partial solution to that problem, the overseer of mortgage giants Fannie Mae and Freddie Mac will begin accepting more “desktop appraisals” in early 2022. The Federal Housing Finance Agency said recently that these remote valuations will take the place of some traditional appraisals, which require appraisers to visit properties that serve as collateral for mortgages.

Desktop appraisals will be available for “many” purchase loans, the agency said — although details are sketchy about precisely which homes or borrowers will be eligible. Instead of physically touring properties for sale, appraisers will inspect listing information and other data from their work stations, said Sandra Thompson, acting director of the Federal Housing Finance Agency.

“This can help each appraiser complete more loans in a day, and it can also help rural communities more readily obtain a necessary appraisal when the borrower is purchasing a property,” Thompson told mortgage bankers at a conference last week.

Realtors and mortgage brokers gripe about long delays for appraisals, and they describe appraisers demanding additional fees for such items as long drives, or for evaluations of unusual homes that lack comparable properties. Thompson unveiled the appraisal initiative during the annual conference of the Mortgage Bankers Association, news that spurred applause from the audience.

“America’s appraiser shortage has become a national crisis for home purchase lenders and the housing industry,” says Jeff Lazerson, president of Mortgage Grader in Laguna Niguel, California.

The basics of home appraisals

If you’re taking a mortgage on your property, chances are you’ll need an appraisal. This is an analysis conducted by a licensed professional who compares your home to similar properties. An appraisal is a safeguard meant to ensure the lender doesn’t give the borrower more than the home is worth.

Appraisals typically cost $400 to $650, a fee that’s lumped into the borrower’s closing costs when the loan is consummated. That evaluation can take a variety of forms:

  • Traditional appraisal. In this type of examination, the appraiser schedules a time to visit the home. The appraiser walks through the interior of the house, taking photos and measurements.
  • Drive-by appraisal. In this case, the appraiser doesn’t set foot in the property — but the appraiser does visit the address and look at the exterior of the home.
  • Hybrid appraisal. This brand of valuation is completed remotely by an appraiser based on in-person intel provided by a third party — typically a home inspector who physically inspects the property.
  • Desktop appraisal. This is the type of evaluation green-lighted by Fannie Mae and Freddie Mac. As the name implies, a desktop appraisal is conducted from the appraiser’s desk, using tax records and information loaded into the multiple listing service by the seller’s Realtor.

Don’t confuse any of these types of appraisals with the valuations conducted by public property appraisers for the purposes of tax collections. The taxable value is the basis of the annual property tax bill, but that number can be much different from the actual market value of the home.

Appraisals also are distinct from the algorithmic automated valuation models, or AVMs, popularized by Zillow. To further complicate matters, Fannie Mae and Freddie Mac last year expanded appraisal waivers — some borrowers who are refinancing and not pulling out equity can get a loan without any appraisal.

A shortage of appraisers

Labor shortages are a hallmark of the coronavirus pandemic. But the shortage of appraisers has deeper roots.

One challenge: Becoming an appraiser requires a lengthy apprenticeship. Another issue: Regulatory reforms enacted during the Great Recession roiled the appraisal market. And appraisers are a graying group, with many retiring in recent years.

The result? The number of appraisers is shrinking. In 2013, nearly 44,000 appraisers were working in the U.S. housing market. Today, that total barely tops 40,000, according to Fannie Mae.

At the same time, demand for appraisals hit record levels in 2021, Fannie Mae says, driven by the combination of strong refinancing volume and red-hot home sales.

Michael Fratantoni, chief economist of the Mortgage Bankers Association, is among the industry leaders applauding the shift to desktop appraisals as an antidote to the shortage of appraisers. “If they’re not having to drive to the properties, they can do more work,” he says.

Who’s eligible? Who knows?

The pandemic made lenders more comfortable with the idea of appraisers working remotely. During the peak of the contagion, some states forbade in-person appraisals. As a workaround, appraisers sometimes asked homeowners to lead property tours by Zoom or FaceTime, and even to submit measurements of their homes.

Meanwhile, steadily rising home values have taken much of the risk out of lending, at least for now. Even so, the mortgage giants say they’ll proceed cautiously.

“We want to deploy this in a relatively low-risk space,” says Lyle Radke, director of collateral policy at Fannie Mae.

During the pandemic, Fannie Mae and Freddie Mac allowed desktop appraisals as a temporary measure. In the latest development, the remote valuations are a permanent part of the lenders’ underwriting process.

From the perspective of an individual homebuyer, the Federal Housing Finance Agency left many questions unanswered. The regulator hasn’t shared details about how to know whether you’re eligible for a desktop appraisal, or if you’ll get a price break compared to another type of appraisal.

“We’re still working out the particulars,” Radke says.

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