Appraisals, inspections on different paths
Andrews McMeel Syndication
If you are intent on buying a home during the pandemic, obtaining an appraisal shouldn’t stand in your way. But procuring a home inspection may be another question.
In New York, California and other states, real estate agents, appraisers and home inspectors are considered “essential employees.” But others aren’t so lenient. Pennsylvania, for example, has prohibited in-person appraisals, inspections and even final walk-throughs.
Even where these necessary tasks are allowed, though, professionals must follow statewide health mandates and adhere to local rules, which may be more restrictive.
To do their jobs, appraisers are using technology to value properties instead of taking a firsthand look around. But independent inspectors can’t do that. They have to crawl over, under and inside your house to create their reports, and they have to do so in person. There’s nothing yet that would allow them to do otherwise.
For the uninitiated, there are major differences between appraisals and home inspections. You pay for both, but that’s where the similarities end.
Appraisers work on behalf of lenders to assign a valuation to the property they are lending against. Their work tells lenders, should they have to foreclose because you fail to make your payments, what the place should be worth when the lender repossesses it for resale.
Home inspectors are hired by buyers — and sometimes sellers, too — to go over the house from stem to stern to determine whether the place is structurally sound, whether the systems are in good working order and whether there are any material defects that impact the home’s livability.
If what the inspector finds is not satisfactory, you can back out of the deal, or you can negotiate with the seller about how to fix the house’s issues. You can demand that the seller make and pay for the repairs, for example, or perhaps you can split the cost.
By comparison, there is no bargaining with appraisers, unless they are way, way off base. They set the value, and the bank will not lend anything more than a percentage of that amount — take it or leave it. There are ways to protest the valuation, but they rarely work. So if the appraisal comes in too low, the buyer has to come up with more cash or the seller has to lower the price.
To keep home sales afloat as people deal with social distancing, federal regulators have loosened the rules considerably. Under the new, but temporary, criteria, exterior-only appraisals or valuations powered by artificial intelligence — aka “desktop” appraisals — are permissible. That way, appraisers need not go inside.
And now, three federal regulators have said that for the next year, banks do not need an appraisal until up to 120 days after the loans have closed. But that applies only to institutions they regulate, and only those loans they keep in their portfolios, as opposed to selling them to investors. There’s no word yet on whether other lending overseers will follow suit.
The authorities have encouraged lenders to accept truncated appraisals, but some, worried about potential repercussions, have balked. So appraisers are turning to sellers for help, asking them to photograph their home’s interiors and upload the pictures so they can obtain as close a look as possible until the pandemic ends.
Toward that end, several companies have come out with software to improve the process. With one from Bradford Technologies, the appraiser shares a unique link with the seller, who uses it to submit geo-coded photos of the home’s interior. The seller is led through a series of questions, such as, “Have any upgrades been made to the kitchen or baths?” and “How old is the roof?”
Founder Jeff Bradford says he knows of some appraisers who are still performing interior inspections, even though “it’s a dangerous time to do so.” If they are carrying the coronavirus, even if they’re asymptomatic, they are “like bees pollinating an orchard” as they go from house to house, he says.
Home inspectors don’t have the luxury of working from home, but some are soldiering on. With fewer sales being recorded, you’d think they’d be readily available to take on assignments. But that’s not always the case.
Bill Walker, a third-generation home inspector in the Washington, D.C., area, says two of his inspectors won’t come to work, and he and his other inspector will only examine totally vacant houses.
Walker normally probes five or six houses a week; now he’s lucky to do three. And he’s requiring sellers to sign hold-harmless agreements “so they can’t blame us if they get the virus.”
“Normally, this is at a time of year when our phones are ringing off the hook. By Sunday night, you’d book the entire week,” he says. “But now, calls are way down, more than 50% off. We could do more inspections, but the virus is now part of the equation.”