Are Appraisals on Their Way Out? (And Do You Even Really Need One When Buying a House?)

Unless you’re in the process of buying, selling, or refinancing a house, real estate appraisals aren’t something most people think about all that often. So the recent news that Fannie Mae will no longer be requiring appraisals probably isn’t something you’ve heard about.

As you can imagine, that’s not something appraisers love hearing since it’s a threat to their livelihood. But will it affect you as a buyer, seller, or homeowner?

You Probably Won’t Even Notice a Change

While this change could potentially cause some issues for you as a consumer, the reality is this probably won’t be something you even notice has changed in the process.

First of all, buyers and sellers often don’t even see the appraisal. When you’re buying a house, the appraisal typically goes directly to the lender, since they’re the ones who ultimately want one done to make sure the property is worth what the buyer is paying for it. Unless there’s an issue because the house didn’t appraise for a high enough amount, the appraisal can go largely unnoticed, other than the agents, buyers, and sellers being notified that the appraisal came back with no issues.

In addition, it’s probably not going to reduce the cost to buyers much, if at all. They’re not completely waiving appraisals; they’re just saying that there are other acceptable forms and methods of appraisals they’ll accept beyond the typical way it’s been done by an in-person appraiser. According to this article on the National Mortgage Professional site, they’re simply modernizing the process and will now be accepting valuations done remotely using technology and data, as well as certifications of value.

For now, this also only applies to mortgages being bought or backed by Fannie Mae. So unless your mortgage is being sold to Fannie Mae, it doesn’t really matter. And it’s not like you have much say in whether it’s sold to them or not anyway; it’s a function of the type of loan you apply for, and which lender you work with to obtain a mortgage.

Here’s Why You Need An Appraisal

Oddly enough, appraisers get more flack for causing problems than they do for preventing them. This goes back to the whole issue of consumers not even seeing their appraisal unless it comes back too low, so the only time they even get recognized is when they’re causing an issue.

By definition, real estate values are determined by the amount a ready and able buyer is willing to pay, and a ready and able seller is willing to accept. But sometimes people and the market need a brake check, and appraisals do just that.

They’re ultimately just trying to make sure that the buyer isn’t paying more for the house than they should, or a homeowner isn’t leveraging their house beyond what it’s worth, and that the mortgage company is making a safe loan.

That said, appraisers are human and can make mistakes. If the consumer truly feels the property is worth what they’re paying for, they can contest the appraisal, or request a new appraisal be done by a different appraiser, but at least there’s a third-party trying to make sure they don’t make a mistake.

But in order for you to be fully informed and advised, it’s also important to work with a knowledgeable real estate agent who can help you know and understand if your appraisal is accurate or not, and help you contest an appraisal that isn’t. Oftentimes an agent is more aware of the sales and values in your area than an appraiser may be, and is also more in tune with the trends in the real estate market because they’re in the trenches working with buyers and sellers on a daily basis.

The Takeaway:

There has been some talk about Fannie Mae no longer requiring appraisals on the loans they buy or guarantee, but the truth is, they’re just accepting new forms of appraisals in order to make the process more efficient. The chances are you won’t even notice that they’ve made this change as a consumer, because it only affects loans that Fannie Mae buys or backs, and appraisals often go unnoticed by consumers unless there’s an issue.

The appraisal is an important safeguard to make sure that buyers, sellers, and homeowners don’t leverage a house beyond what it’s worth, and ensures that lenders don’t make risky loans. However, appraisers can (and do) make mistakes, so it’s important to work with a knowledgeable real estate agent to help you determine if your appraisal is accurate, and help you contest it if it isn’t.