Drive-By Appraisal: How Does it Work?

You may hear a lender tell you that you need a drive-by appraisal. What does that mean? Is it different from a regular appraisal?

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This term is often used for refinances. Most purchase loans require the full appraisal. The drive-by is an exterior look at the home. The appraiser doesn’t have to come into the home, which means no appointment is necessary. Basically, the appraiser makes sure the home is still standing, looks to be in good condition, and then determines its value.

How is the Value Determined?

You might wonder how an appraiser can come up with a home value if he doesn’t step foot in the home. Again, because he assumes the home is in good condition inside based on the exterior appearance, the appraiser doesn’t need to come inside the home.

Instead, the appraiser uses the comparable sales in the area to determine your home’s value. This is the same method they use when they conduct a full appraisal. The appraiser will look for homes within ½ to 1 mile from your home that sold within the last six months. The idea is to find homes that have the same style and features as your home. This is the basis of the appraised value.

The Benefits of the Drive-By Appraisal

If your lender offers you the chance to use a drive-by appraisal, you stand to gain quite a few benefits:

  • Lower cost – Since the appraiser has to spend less time at your home, the price is usually lower for the drive-by appraisal. In some cases, you may save as much as half of the cost of the standard appraisal.
  • No appointment necessary – Drive-by appraisals are often done much quicker than regular appraisals because the appraiser doesn’t need an appointment. He can ‘drive by’ your home at his convenience. You may notice someone taking pictures of the front or back of your home at some point, but that’s just the appraiser getting the pictures he needs for the appraisal report.
  • You won’t lose value – If there’s something wrong inside your home, the appraiser won’t know about it. This could help you avoid losing value in your home.

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The Downside of the Drive-By Appraisal

There is one serious downside of the drive-by appraisal – you may lose value. If you made improvements to the home recently, the appraiser won’t know about them. This could count against your value, if you were hoping to receive a higher value due to recent upgrades that you made.

Of course, you can talk to the appraiser and let him know about the upgrades you made, but for him to use them in his report, he would have to come inside and conduct a full appraisal. This could mean a higher cost to you, but if the value will be that much higher, it may be worth it.

Drive-By Appraisals are Diminishing

Drive-by appraisals are actually not as common as they once were. Ever since the housing crisis and the tougher regulations, lenders are wary about using the drive-by appraisal. They would rather know the full value of the home based on a complete inspection of the exterior and interior of the home.

A drive-by appraisal may not be as accurate as a full appraisal. For example, what if something is majorly wrong inside the home? The appraiser won’t know about it. He may value the home higher than it’s really worth. This gives you the opportunity to borrow more money in the refinance. If you go to sell the home and find out that the value isn’t nearly as high as you thought because of the issues inside, you could find that you are upside down on your loan. In other words, you may owe more than the home is worth.

It’s pretty uncommon to find a lender that allows a drive-by appraisal today. If you do, proceed with caution. It’s best if you have an idea of how much your home is worth. If the appraiser comes back with a much lower value or even a much higher value, you should request the full appraisal. This way you can see without a doubt that your home is worth what the appraiser says that it is worth.

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Justin McHood is a managing partner at Suited Connector and has been recognized by national media outlets as a financial expert for more than a decade.

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