Sacramento Appraisal Blog

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convenience

An explosion of appraisal waivers. Is that good or bad?

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Appraisal waivers have really exploded in recent years – especially during the pandemic. But how many are there exactly? Let’s look at actual numbers to walk away with some perspective. These stats are from January 2021 from AEI.

QUICK SUMMARY:

  • 47.4% of all Freddie Mac loans had a waiver
  • 44.5% of all Fannie Mae loans had a waiver
  • Waivers are far more common during refinances
  • Only 10-12% of purchases had an appraisal waiver in January
  • Non cash-out refinances have the most waivers (67-69%)
  • The higher your loan-to-value, the lower your chance of a waiver
  • Waivers have seen a dramatic increase during the pandemic

NOTE: This post is not about buyers removing the appraisal contingency. That is in a sense a “waiver”, but the topic here is Fannie Mae and Freddie Mac not requiring an appraisal.

What else do you see?

CLOSING THOUGHTS:

1) Crazy growth: It’s astounding to see nearly half of all loans getting an appraisal waiver, though for now most of these are refinances instead of purchases. Honestly, I would have guessed the purchase numbers were a little higher than reported.

2) Seeing numbers: What real estate professionals experience with appraisal waivers with their clients can really vary. For instance, if you work with FHA borrowers putting very little down, you probably don’t see many waivers, but if you work with conventional buyers putting 30-40% down, you’re going to see more. This is why seeing actual stats is so important.

3) There is place & danger: I’ll be the first to admit there is a place for appraisal waivers in today’s market. That may not sit well with some colleagues, but I don’t have a problem seeing them occur with no cash-out refinances where owners have massive equity. That’s a no-brainer. The danger comes when we start seeing too many appraisal waivers happen in the purchase market especially. The concern is waivers can essentially artificially inflate prices by helping some properties close higher than they should.

4) Big data favoring people with more money: Appraisal waivers are being given to people bringing more money to the table. That’s what the stats show and I get it from a risk standpoint. But with so much conversation about equality in real estate, I guess I find it ironic to see a waiver system implemented that is clearly giving more advantage to people who already have more wealth.

Thanks for being here.

SPEAKING GIGS CLARITY: Lately I’ve been getting asked to give in-person presentations, but I’m not there yet. I’m not vaccinated, so my answer will be NO until that happens. But then I’ll have to see how comfortable I feel too. For now I’m glad to speak by Zoom. Just a heads-up.

Questions: What stands out to you above? What are the positives and negatives of appraisal waivers? I’d love to hear your take.

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The invasion of tech companies in real estate

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Tech companies want a piece of the real estate pie. Amazon. Zillow. Opendoor. Rex. It seems like every week there’s a new company announcing its venture into the game. Here are some things swirling through my mind as I think critically about this trend.

1) Stress & real estate hold hands: Tech companies talk about real estate like it’s as easy as the click of a button, but it’s complicated because humans are involved. There are real people trying to negotiate, advocate for their interests, and navigate complexities in the housing market. Can we make things less stressful? I sure hope so. But are real estate transactions innately stressful because of all the moving parts? Probably.

2) The obsession with speed: There is space for escrows to be faster as tech firms say, but I hope we don’t lose sight of the importance of time. It’s okay to have space for necessary inspections, negotiation based on those inspections, and a reasonable contingency period so buyers and sellers are sure about their decision. There’s this idea that real estate should be instantaneous, and maybe one of these days it will be on the blockchain, but mistakes are easy to make if we go too fast. On that note, let’s be cautious about expecting too much from appraisers in this climate because speed can water down quality. Do you know what we need more than fast appraisals? Reliable appraisals.

3) The fine print: A company like Opendoor or Zillow can offer to buy a house at a price that seems reasonable on paper, but it can quickly become low when money for repairs is skimmed off the top – not to mention a higher commission than what is being paid during public sales on MLS. This is where sellers need to weigh how much they’re going to net with a tech company’s offer.

4) The narrative of convenience: Big brands are trying to capture consumers with the idea of making transactions easier. This sounds amazing and consumers certainly want convenience, but in my mind the bigger issue is money. Sellers want the highest price possible and buyers want to pay the least amount possible. I wonder at times if this idea is getting lost in the midst of clever marketing. Or are we as a society starting to value convenience more than anything? To be fair there is a segment of the market that will sacrifice profit for the sake of convenience. How much of the population will do this? We’ll see. The market gets to decide.

5) Models change: We no longer go to Blockbuster to rent videos, we use Google Maps instead of the Thomas Guide, and when booking a vacation most of us don’t use a travel agent. Thus when it comes to real estate, let’s expect to see change in the future. I’m not saying tech companies are going to take over and humans will lose to Skynet (a Terminator reference). But for anyone working in real estate, it’s a good idea to watch this trend, listen closely to the narrative being spun, show your value to consumers, and try to think ahead of the trend so you can position yourself for the future.

Anyway, that’s what’s on my mind. I hope that was helpful or interesting.

Bubble story on CBS: Yesterday I was interviewed for a piece on CBS Sacramento about Sacramento home prices being similar to the peak in 2005. Check it out if you wish. One quick note. The reporter said, “Have no fear” in the story. I wanted to clarify that those were not my words.

Questions: Which point resonates with you most? What did I miss? What are you most and least excited about with tech companies in real estate?

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