Drive-by appraisals don't account for issues that may be visible in a home's interior.

Drive-by appraisals don't account for issues that may be visible in a home's interior.

In certain cases, homeowners or lenders request a drive-by appraisal. As the name suggests, this type of valuation is not as thorough as a standard appraisal, though it is still completed by a licensed or certified real estate appraiser.

With a drive-by appraisal, the professional doesn't enter the home. Instead, the analysis takes place from the exterior and starts with simply ensuring the property still stands. Essentially, the appraiser derives an estimate of a home's value by looking at it from a public roadway if possible. Additionally, the valuation expert will take a picture of the house.

One feature that remains constant is appraisers examine data in addition to the home. After driving by the property, appraisers review information about comparable sales in the neighborhood. Plus, they can obtain more data from county records, other public information and previous appraisals for the property to determine a house's age, size and other details. The appraiser typically draws conclusions from the exterior condition and applies assumptions that interior maintenance, updating and care are consistent.

The main reason behind a consumer's desire to have a drive-by appraisal is its lower cost. These valuations are less costly than a full appraisal. However, are the savings worthwhile?

Cons of drive-by appraisals
Other than the lower cost and the lack of need to meet an appraiser, there are few benefits to a drive-by valuation compared to a full one. The obvious reason for this is the appraiser doesn't have an accurate view of the home and its characteristics.

"There are few benefits to a drive-by valuation compared to a full one."

Without seeing the interior, an appraiser may miss numerous obvious issues. These could include mold growth, rot and other signs of poor maintenance. Moreover, appraisers can't obtain measurements of the gross living area, which may be much larger or smaller than reported in the county assessor's or old MLS sales records. Although appraisers have data available, that information may not be up-to-date or accurate.

Ultimately, these cons could mean a borrower could receive a lower loan amount than what they are eligible to finance.

The decline of drive-by appraisals
The housing downturn and resulting real estate industry regulations decreased the commonality of drive-by appraisals. Prior to the housing market crash and mortgage crisis, many lenders found these valuations to be acceptable for loan approval. However, because the federal government put additional rules in place to ensure more credible opinions of value and ethical practices, most lenders require a full appraisal now.

Regulations like the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 also targeted house flipping schemes, according to The Wall Street Journal. With a drive-by appraisal, flippers could do little work to a home and put it on the market for an unsupported price to a potentially unknowledgeable buyer, so regulations required more thorough valuations for home loans.

Drive-by appraisals look at only a home's exterior.
Drive-by appraisals look at only a home's exterior.

When drive-by appraisals are appropriate
Some lenders believe a drive-by appraisal is sufficient for a home equity loan because of a perception of lower risk. 

Regardless of the situation, consider the appropriateness of a drive-by appraisal. Weigh the proposed appraisal savings versus the risk of an appraisal not reflecting condition, quality amenities and deferred maintenance, and determine what that could mean in relation to the loan amount. Keeping a couple of hundred dollars seems appealing, but that amount could be minimal to the thousands of dollars that could be lost if the appraisal comes in far off market value.