One of the more important documents a lender reviews when a loan application is first submitted is the property appraisal. In reality, once a loan application is turned in, there will actually be two separate approvals- one for the applicant and one for the property. The application is documented with a combination of borrower-provided paperwork along with various third party documentation such as title insurance and an appraisal. What many may not know however is the old-fashioned way of ordering a property appraisal is long gone. Instead, the lender is alerted to the type of appraisal needed based upon the results of an automated underwriting system report.

A full appraisal is one where the appraiser first performs some internal research based upon recent sales in the area of similar properties along with a copy of the subject property’s sales contract. The sales price is a starting point for the appraiser. These recent sales are listed in the local multiple listing service, or MLS. When an appraiser receives an appraisal order, the first thing that is done is perform this research. 

The appraiser will identify recent sales and then make a physical visit to the subject property. The appraiser does both an interior and exterior inspection of the property. Note, this is separate from a buyer-paid property inspection. The appraiser will make a general determination of the property’s condition based upon a visual inspection.  The appraiser will visit the property, make the inspections and take photos of the interior as well as exterior of the property. After gathering this information about the property, the appraiser will then provide a final value. 

There are however different degrees of an appraisal. A full appraisal with interior and exterior photos is the most thorough. But the AUS ‘findings’ might indicate that a full appraisal with photos is unnecessary. The AUS might only need an appraisal with exterior photos. The appraiser completes the appraisal order but does not take interior photos. 

A ‘drive by’ appraisal is actually very descriptive. The appraiser performs the initial research including recent sales of similar properties in the area. Yet the physical visit to the property is limited. There won’t be any interior or exterior photos, much less an inspection of the general condition of the property. Instead, the appraiser will literally drive by the home and make a general comment about the condition of the home.

There is even a ‘desk review’ which means the lender’s underwriter will review a completed appraisal as a secondary approval requirement.

One final note, even though the AUS does not mention a full appraisal but instead just a drive-by, a lender can still override that condition and request an upgraded appraisal from a drive-by to a complete appraisal report. It’s just the lender can’t do the reverse and downgrade an appraisal requirement from a full report to a drive-by. It’s okay to require more documentation but not okay to dismiss requested documents or downgrade an existing approval. The degree of appraisal is clearly marked on the AUS findings and must be followed.