Drive-By Appraisals: A Closer Look at the Process

When it comes to lending practices, institutions have several options to assess property values without the need for a comprehensive appraisal report. One such alternative is a drive-by appraisal, also known as an exterior appraisal. This method involves an appraiser examining the property from the exterior, making it a faster and more cost-effective option compared to traditional appraisals. In this article, we will delve into the process of a drive-by appraisal, its benefits, drawbacks, and the factors that influence its accuracy.

How Does a Drive-By Appraisal Work?

A drive-by appraisal begins with the appraiser researching recent comparable sales (comps) in the area to gain a general idea of the selling cost of homes like the subject property. This step is crucial as it provides a benchmark for the property's value. In times of robust sales, this process is relatively straightforward. However, when sales are few and far between, or if the property is located in a rural area with very few like properties, finding accurate comps can be more challenging.

Next, the appraiser takes a drive through the neighborhood to assess the overall look of the area and how well the neighbors maintain their property. This step helps the appraiser determine whether the homes in the neighborhood are increasing or declining in value, which can impact the subject property's value.

The appraiser then drives by the subject property to observe its exterior and curb appeal. They walk around the exterior, taking pictures, measurements, and notes on anything they observe. This step allows the appraiser to assess the property's overall maintenance, visible structural issues, and any other factors that may impact its value.

After collecting all the necessary information, the appraiser reviews their notes, research, and pictures to finalize their appraisal report and estimate the home's appraised value. This process typically takes less time than a traditional appraisal, making it a more cost-effective and convenient option for both lenders and borrowers.

Factors Influencing the Accuracy of a Drive-By Appraisal

While drive-by appraisals offer numerous benefits, their accuracy can be influenced by several factors. Some of these factors include:

1. Property Condition: The appraiser's examination is limited to the exterior, so they assess the overall maintenance, curb appeal, and any visible structural issues. However, they cannot evaluate the interior condition, which may impact the property's value.
2. Location & Neighborhood: Location and neighborhood factors, such as desirability, safety, and proximity to amenities and schools, can significantly impact property values. Appraisers take these factors into account, but they may not be able to assess the interior condition of nearby properties, which could affect the subject property's value.
3. Market Trends: Market trends, including supply and demand, interest rates, and economic conditions, are crucial considerations in a drive-by appraisal. However, the appraiser's limited access to the property may result in a less accurate assessment of the property's value in relation to market trends.
4. Comparable Sales: Comparable sales, or "comps," are used to assess how similar properties in the vicinity have sold recently. In a drive-by appraisal, the appraiser may not have access to the interior of the subject property or the comps, which could lead to a less accurate valuation.
5. Zoning & Environmental Factors: Zoning and environmental factors are assessed to ensure the property complies with local regulations and is not subject to any environmental hazards or restrictions that could affect its value. However, the appraiser's limited access to the property may result in a less accurate assessment of these factors.

In conclusion, drive-by appraisals offer a convenient and cost-effective alternative to traditional appraisals. However, their accuracy can be influenced by several factors, including property condition, location and neighborhood, market trends, comparable sales, and zoning and environmental factors. By understanding these factors, lenders and borrowers can make more informed decisions when considering a drive-by appraisal.