Appraiser's perspective - Why not a windshield appraisal? By Charlie Elliott Jr., MAI, SRAappraisals, exterior-only appraisals
Political correctness has certainly found its way into the
terminology we use to describe the type of appraisals we order for
loans. Twenty-five years ago when I started in this business, they
were first called "windshield appraisals." I do not remember the
form saying "windshield," but that was the standard industry term
for a quick and economical appraisal. For those with a limited
imagination and whose appraisal experience has occurred more
recently, this would mean that the appraiser drove past the home,
eyeballed it through the windshield and drove on. If photos were
required, they were usually taken from the same vantage point. If
there was a crack or a smudge in the window, then that became part
of the official inspection record. Some appraisers were accused of
merely slowing down the car for their inspections. That was the
extent of the inspection required when a windshield appraisal was
prepared. This was not very scientific, but it worked given the
times and the lender's perceived needs. Not too long after that,
the powers that be began referring to this practical appraisal as a
"drive-by appraisal." In this case, the form did say "drive-by,"
and those using it did not think of the term as humorous or less
than professional.
Well, those days are gone. Today, we live in a politically
correct environment that makes very few allowances for terms like
"windshield appraisal." "Exterior-only appraisal" has made its way
into our vocabulary as the proper term to use when an appraisal is
prepared without the benefit of a view inside the property. To me,
preparing a windshield appraisal was more fun than preparing the
exterior-only inspection appraisal. It made me feel a bit more
relaxed and I was not as concerned about someone suing me over some
small technical misstatement. It made talking shop a bit more
interesting over a beer at the neighborhood tavern, and I did not
feel like I was walking on eggshells when talking about my
work.
On a more serious note, do appraisals with limited inspections
adequately serve the needs of the investor evaluating a potential
property as collateral intended to secure a loan? Effective later
this year, Fannie Mae is changing its appraisal forms yet again.
Departing from recent conventional wisdom, Fannie Mae has decided
to create an appraisal form that can only be used as an
exterior-only form. This indicates that Fannie continues to
vacillate about just how detailed an appraisal must be. On the one
hand, Fannie seems to be a strict disciplinarian, insisting on
perfectly prepared appraisals. On the other hand, it is suggesting
that the new forms are designed to be completed more efficiently.
From its actions, Fannie seems to be suggesting that more
appraisals offering limited inspections should be prepared.
As an appraiser, I would rather do an exterior-only inspection
appraisal because they are easier and quicker. I do not have as
many details to attend to and my whole job is less stressful. In
some cases, I can finish an exterior-only inspection a week faster
than an appraisal that requires me to go inside the house. You may
wonder how this could be, since it doesn't take more than an hour
to inspect the inside of a home. While this is true, sometimes
getting into the home is the problem. At our company, we frequently
get calls for appraisals that must be done within two or three
days. In some cases, the owners of these properties are out of town
or on vacation, and cannot give us access to the property for a
week or more. If time is of the essence and if a limited inspection
is appropriate, then by all means, you should do it. It will save
you time in some cases, a lot of time.
Without question, an interior inspection provides a more
accurate appraisal. Two cases come to mind where it can make a big
difference. The first is the custom home with many fine
appointments such as stainless appliances, granite countertops,
high ceilings and heavy crown molding. The second is when the
property has not been well-maintained inside. This can vary from
outdated décor, to pet stains, to outright destruction. I
would estimate that in extreme cases variances could range as high
as 30 or 40 percent of the value of home. This can be especially
problematic if the interior is in poor condition at the time that
an appraisal is performed and loan collateral decisions are
made.
Let's say what would have otherwise been a $200,000 house is
actually a $170,000 house due to the poor interior condition. The
appraiser performs an appraisal without the benefit of an interior
inspection and provides a value estimate of $200,000. Mr. Homeowner
(who, by the way, gets a 30-year, $195,000 loan) lives in the home
for three years. During this time he loses his job and falls behind
on his payments. The lender exercises patience, but is forced to
foreclose after months of telephone contact and broken promises.
Realizing that he will be evicted, the homeowner becomes vindictive
toward the mortgage company, rips up the carpet, knocks holes in
the walls and removes appliances, light fixtures and everything
else not tied down. The house is appraised by a different appraiser
just prior to foreclosure for $202,000 on another exterior-only
inspection appraisal. The lender feels confident about its
collateral, proceeds to foreclose and engages a real estate agent
to sell the home. Later, the real estate agent produces a broker
price opinion indicating a market value of $140,000, as it provides
detailed interior photos of the damage and a list of repairs with
an estimated cost to cure of $58,000. Needless to say, the lender
is not a happy camper and points its finger at both appraisers,
crying foul. If you were the judge, where would you place the
blame?
Whether you prefer the classic term "windshield appraisal" or
the more contemporary "exterior-only inspection appraisal,"
appraisals with limited inspections can be a double-edged sword.
They can save time and money up front, but they can bite you in the
end. The prudent lender will approach such appraisals with caution,
especially with high loan-to-value products.
Charlie Elliott Jr., MAI, SRA, is president of Elliott &
Company Appraisers, a national real estate appraisal company. He
can be reached at (800) 854-5889,
[email protected] or
through the company's Web site at www.appraisalsanywhere.com.
