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The terms “waived appraisal” and “virtual appraisal” get bandied about a lot in the housing industry. But not everyone may understand just what these are and how they can impact the process of buying a home.

Virtual Appraisals
First, the term “virtual appraisal,” though popularly used to describe a hands-off appraisal, is something of a misnomer. If you are imagining an erstwhile appraiser donning a pair of big virtual reality glasses and pretending to walk through your client’s home from miles away, think again!

In fact, the mortgage industry call these “desktop appraisals.” This is because many of the appraisers who do this work never actually view a property via Facetime, Zoom, or another virtual platform—although some do.

The main work for an appraiser who does desktop appraisals is truly at their desks. They are doing careful research to learn as much about the home’s value as possible. They may use property information from the county; Google Maps; and the MLS—and will view any photos they can find. As always, they are looking for valid comparable properties, just as they do when performing a live appraisal. 

Does this seem like cheating? “Actually, the appraisers tell me that, aside from travel time, this type of assessment is usually more time-consuming for them than visiting a home in person,” says Dean Schiffler, Vice President of Mortgage Lending with Guaranteed Rate Affinity. “But most of the ones I’ve spoken to still feel that they would get more accurate results by visiting in person and prefer to do that when they can.” Desktop appraisals can work very well for homes in planned developments but may not be quite as accurate for more unique ones. 

It should come as no surprise that desktop appraisals, although they existed before COVID-19, became much more common when the pandemic began. In the first stages of the pandemic, many homeowners and appraisers wanted to reduce the chance of spreading the virus by staying out of their clients’ homes. 

Waived Appraisals 

Waived appraisals, by contrast, were becoming popular prior to the pandemic, as lenders began to cut down on the costs of processing a loan. 

A waiver of an appraisal is also something of a misnomer because although an eligible purchase may not require a formal appraisal process, that does not mean the property isn’t evaluated. Exactly what makes a property eligible for a waiver? For starters, the down payment written into the Purchase Agreement must be 20% or more.  

However, a larger down payment is not enough to trigger a waiver on its own. Sometimes agents are surprised to find that their client, who is putting 40% down or more, is not offered a waiver. This is because waiving an appraisal is purely a numbers game. 

“Fannie Mae and Freddie Mac have databases of collateral underwriter data,” says Eric Feld , a Mortgage Consultant with Trustone Home Mortgage. “If the property’s information is in there and the data is recent enough, that can be used.” There must also be enough information on nearby properties that have been sold in the past few months to place an accurate valuation on the home. For this reason, homes that are in denser and more urban areas are much more likely to qualify for a waived appraisal after they’ve met the minimum down payment.  

The Future of Appraisals 

The Federal Housing Financing Agency (FHFA) recently announced that desktop appraisals are legal and will become a permanent option.  

A property buyer is not obligated to use either of the types of appraisals discussed here, and sometimes it isn’t to their benefit. It is possible that the hands-off approach can cause a buyer to overpay for a home if problem items that could have been uncovered are missed. 

In many cases, though, the reduced costs of hands-off appraisals can be appealing to buyers. And of course, lenders tend to like them because they cost less to perform and have a quicker turn-around. 

Both desktop appraisals and appraisal waivers are likely here to stay. Homebuyers should discuss their options carefully with their lender before making decisions about appraisals.