2055 Exterior

[todd diep]

I've been asked to do a 2055 exterior property for a 1 mil+ 3800sf property in the south bay, california. I'm hesistant to accept this based on hearing/reading that its generally a no no. I'm kinda lost as to the reason why or why not. Could someone please enlighten me in terms of an appaiser's or lender's pov - besides the obvious " I don't want to pay the higher fee" ?

Thx

 

[KD247]

First, no appraisal is ever as thorough as it could be. It just isn't practical to survey every site, check for every detail of zoning and building code compliance, and test every roof for leaks.

So, appraisal inspections are intended to reveal the most important determinants of value, including things like condition and quality, but there are numerous items that would be impractical to check for and/or that probably wouldn't significantly affect value anyway.

Regarding curbstone appraisals, for either a $20,000 house or a $20,000,000 estate, it is up to the appraiser to decide whether the significant value determinants can be reasonably verified from the curb. This afternoon, I played golf in Santa Barbara. Before I left a friend told me that tract homes in Goleta (a suburb at the north end of the city) are now selling for $800,000 - $1,200,000. These are run-of-the-mill (for example) 1,500 sf homes built in the late 60's, a few with cars parked on the front lawn. With values increasing every month and very few sales, the opinion of value isn't going to be changed much by the hole kicked in the bedroom door. One ad I saw for a modest $895,000 home said something like "kitchen curtains not included". Whew, glad we got that straight before it became a deal killer. Anyway, I think a reasonable opinion of value could probably be established without knowing whether the bathroom floors were tile or vinyl.

I'm thinking out loud, now. The other criteria is the use of the appraisal. If the Client specifically requests a curbstone appraisal, I believe that two things are implied in the request. First, that the Client will be satisfied with a reasonable, but less precisely developed value opinion (a slightly wider range of value) and second, that the appraiser will notify the Client if a reasonable value opinion requires a more detailed inspection, for example, if the Subject is missing a large portion of its roof.

Anyway, I don't think the size or value of your Subject precludes an exterior inspection. But, if a reasonable opinion of value can only be developed by inspecting the interior, get back to the Client right away. The Lender's point of view is obvious - if they can get by with a 2055 exterior, why make life any more difficult?

 

[deturner]

Well, our newest company policy is "No Exterior Only" appraisals for mortgage loan purposes. Will only do them for pre-foreclosures and they have to provide me with a previous appraisal.

I am finding way too many people have refinanced, taken out seconds, etc. where the lender used a "drive by" and the home owner is now upside down in the property. The main reason is that the public records used were incorrect.

The most recent is a property that is today worth about 200K. Owner bought the house for 195K approximately 3 years ago. He took out a second about a year ago and the appraisal was a drive by. The appraiser used the public records information and the house ended up being 500SF larger than it actually is.

I am still going to be cautious with a previous appraisal because the "appraiser" may not be correct in his/her information. (I have seen that a lot lately too).

DaveT in NC

 

[Jim Onderisin]

It's not the possible value range, but the available information regarding the physical characteristics of the property, that determines whether a drive-by is feasible. After all, you compare other properties which sold to the subject property without having seen the inside of those, right? But, you have to have a sense that you have sufficient information about the subject property, and you have to operate under (and make your appraisal subject to) a set of extraordinary assumptions. For instance, an assumption might be that both the condition and quality of the interior of the subject property are consistent with market expectations for a property that age and in that particular market. If it isn't, your value opinion doesn't apply.

 

[Peter LeQuire]

While I don't disagree with most of what's been said, I'd offer the following thoughts.

First, my experience is that the primary reason lenders request less than a complete inspection is the expectation that the fee will be less than it would be otherwise. Secondly, most lenders (or at least the contact people ordering the appraisal) have no grasp of many of the matters we're concerned about, such as reliability. Third, most lenders have a hard time understanding why an appraisal based on an exterior-only inspection might be appropriate for a house that is highly similar to those in its subdivision/neighborhood, and an exterior-only inspection might not be appropriate for a custom, amenities intensive, unusual house.

I understand that, from our point of view, lenders are taking on a portion of the risk for anything that would be revealed by an interior inspection: but, as a practical matter, if a lender has a loss that is value related, I would bet my bippy that, regardless how carefully hedged the appraisal report is about the level of inspection, the appraiser will be involved in any attempt to recover.

Do I do appraisals with only an exterior inspection? Yes, if I can develop enough information so that I can be reasonably confident about what it is. Generally, I limit them to "tract" houses in neighborhoods that have a reasonable amount of activity; houses that have recently sold through MLS (but not "upper end" houses); or houses I've appraised before. And, as has been well said by others, the report is hedged for anything that might be revealed by a more thorough inspection.

Lastly, I won't do an appraisal based on an exterior-only inspection for any client other than a lender, and I make sure that the lender is named as the only intended user I specifically exclude the borrower as an intended user.

 

[hastalavista]

Todd-

I'd go with Koert & Jim's advice here.
Your client has determined for its particular risk analysis, a 2055 will suffice. What you need to determine is given the intended use of the report, do you have access to sufficient data (which you can deem to be reliable, but is not guaranteed) that will allow you to form a reasonable and credible value? What you need is access to 3rd party data (public records, MLS, previous appraisal reports, etc.). What you cannot use is data you collect from the borrower or agent that can’t be independently verified (since they have a vested interest in the result. Remember, we’re talking Mortgage Finance work here- a different procedure could work for a different type of client/intended use).

I respect deturner’s choice not to do exterior only valuations. To me that’s a business decision (although, based on professional appraisal considerations). Many others also agree with deturner. I, however, have no such blanket policy, and make my determination of what is appropriate on a case-by-case basis.

If your subject is a $1-million+/- dollar house, located in a development of $850k-$1,250k homes, and you have sufficient, independent data verification sources for the subject, then value of the subject is irrelevant to the acceptance of the assignment.
By the same token, if you were doing a drive-by on a subject with a value of $300k+/-, but the value range of the development was $150k to $200k, then value range of the subject becomes very relevant to the assignment.
And just so I’m very clear, it’s not the particular “VALUE” of the subject that is relevant; it’s the relationship of that value to the overall range of the neighborhood that becomes relevant.
In the million-dollar example, you have data and your property fits within that data. Do you need to inspect the subject if your data is sufficiently reliable to the intended user’s needs? I think not.
In the $300k example, your property does not “fit” within the data range. The subject may indeed be worth $300k (however unlikely), but to determine that, you’ll need additional data that can only be obtained and verified by physically inspecting the property.

Last item- If when you go to inspect your subject, and it is not visible, or enough of it isn’t visible where you can reasonably determine its existence and condition (at least from the front), you should not complete the assignment as a drive-by, and upgrade it to a interior/exterior inspection.

 

[Ross (CO)]

Most of us have done drive-by's for those typical situations where it can be an acceptable means of observing the property, stating what we know and clearly stating what we AND the client will NOT know.....by viewing only from the roadway.....and then giving an opinion. There are surely those times when there is NOT enough sufficient and reliable information about the property and whereby it becomes the appraiser's obligation (and responsible mode of self-preservation and risk aversion) to suggest that an interior observation is required here.....or else you must opt to decline the assignment.

Earlier this week I had such a situation. County records show an "1889" date for original property. (That is very old for my city ! ) No MLS re-sale records of any kind. County building dept. shows record of "movement of residential structure" and "move onto foundation" and then another entry a few decades ago of adding a 2nd story. This is located very close to a major downtown college campus with SO many such homes being rented-out to students. I expressed to my client-contact person that they need to re-consider this one......and let me know if you want me to see the inside of THIS house !

Rather than putting the order "on-hold" (for me) and awaiting client reply to shared information.........they simply re-assigned to another appraiser. I have NO doubts that the assignment will remain a drive-by until they have exhausted all local appraisers in their registry. They will find someone to take the job. And, to add a little more insult to the scenario......this client has been extremely negligent in their failing to clarify the true intended use/purpose of their drive-by orders since the winter months of this year. At least when you interact with a property owner on a full appraisal you get a 2nd opportunity to gain clarity as to the purpose/use of your report !

There really can be an experience of personal satisfaction.....when one makes conscious decisions to turn-down and decline assignments that create those "funny feelings" as we begin our initial research on a property. It is unfortunate that some peers "need" every assignment that comes along.....and they accept and complete any and all, as presented. The notion of balancing our personal risk aversion in direct reflection of the (generally lesser) fee offered for a "drive-by" is going to see even greater impact with the advent of the new forms coming along the way.

The chasm between a "full" appraisal and all the other sundry client options for minimalized, lesser and abbrevaited valuation processes (Drive-By's, AAAVM's, AVM's, BPO's and CMA's) is going to get wider and deeper. Buckle your seat belts....it's going to be a bumpy ride ! There will be an interesting transformation period as so many clients struggle with decisions about paying a fair and respectable fee for the new "full" appraisal done by a 98.6, real human being seeing a property with their eyes......or falling back on the short-cut valuation alternatives and options for the sake of higher profits at the end of the month.

 

[Doug in NC]

Remember, ultimately it's your decision (not the lender's) whether or not a driveby is adequate. You could greatly cut down on your "potential" liability by seeing the property firsthand. It could have above-average deferred maintenance or a portion of the home may be unfinished. I recommend requesting an upgrade in the assignment, for the very reason that you are placing a value on a high-priced asset that you probably know very little about. You'll make a little more on your fee too.

 

[Workbox]

I just had one like that and I told the lender due to the $$ range of that house and two different SF from two different sources, it would be advisable to inspect and measure the house. They agreed.

 

[Verne Hebert]

I wouldn't do it.

Why would you? There is nothing but down side.

Aside from the question of developing a credible report for the purpose; is the potential calls and grief that will go on.

Wanna' sit in court for a borrower than can afford attorneys.