WASHINGTON-- Picture this money-saving scenario for 1996 if you plan to shop smart for a new home. The sellers of the property you want to buy have listed it for $225,000 -- a price their real estate agent insists is backed up by a comparative marketing analysis she's prepared of similar houses for sale.
But you bring to the negotiating table a new, high-tech weapon that blows away the sellers and their Realtor: a professional appraisal of the property, complete with detailed sales comparables and a cost-to-reconstruct and lot valuation analysis.
You ordered the report by phone earlier in the day and got it back by fax three hours after charging it to your credit card. The appraisal reveals that no truly comparable house anywhere in the area has sold for $225,000 in the past 12 months.
In fact, the highest price comparable out of more than 100 houses analyzed went for just $208,000 -- and that one had a slightly larger lot size, 600 additional square feet of interior space, plus an extra half-bath.
The cost of your appraisal: $75. Potential savings in negotiations? That's up to you -- but certainly in the thousands of dollars.
Welcome to the new frontier of real estate appraisals, where you don't have to pay $350 or more and wait for a week to get a report.
The biggest players in the American home mortgage market -- such as Freddie Mac, the Federal Home Loan Mortgage Corp. -- already are using fast-turnaround, lower-cost appraisals in a major way.
But 1996 should see the first large-scale marketing of "limited-scope," electronically generated appraisals to individual consumers for use in everything from property tax squabbles with local governments to haggling over the price of a home.
Limited appraisals, according to the 1995 national standards of the Appraisal Foundation, provide valuations that are "something less than or different from a complete appraisal." The limited appraisal is a response to the demands of appraisers' customers -- primarily lenders -- for a valuation product that fits in with their shifts to electronic loan underwriting and cost-cutting.
Mortgage lenders participating in Freddie Mac's automated underwriting "Loan Prospector" program, for example, can ask for an "expedited collateral assessment" at the application stage and get a go or no-go decision on the property within 72 hours. During that interval, Freddie Mac taps into public and private valuation databases and conducts at least an exterior inspection of the home itself.
The expedited process allows the local lender not only to give a final mortgage approval far more quickly, but also to charge the borrower less at closing.
Maurice Wilhelm, executive vice president of MortgageAmerica Inc., a large regional lender based in Birmingham, Ala., says borrowers who get an expedited appraisal via the Freddie Mac program end up paying about $230 at settlement vs. an average $350 for a traditional appraisal.
Freddie Mac's system is available only when you apply for a loan with a lender hooked into its Loan Prospector system. But if Atlanta-based appraisal company executive Michael Mattox has his way, consumers in markets across the country will be able to order up a limited-scope professional appraisal on any of millions of houses in the coming months -- whether they want to buy, sell, take out a home equity loan or are simply curious.
Mattox is president of Premier Appraisals, which already offers limited-scope, quick-turnaround valuations to lenders and consumers in Atlanta, Ga., and Jacksonville, Fla., and is expanding to metropolitan Washington, D.C.; Raleigh, N.C.; and other markets early in 1996. Premier's goal is to have a nationwide network of branches and affiliates using its proprietary valuation software within 1996.
For $75, Premier offers a limited-scope appraisal within three hours, including reviews by state-licensed appraisers. For additional fees up to $275 on an average-priced house, the firm offers gradations of exterior and interior inspection and photographs up to a full traditional appraisal.
Are limited-scope appraisals accurate? Major lenders, who stand directly at risk if they are not, think so. Appraisal entrepreneurs such as Mattox think so, too, but add this caveat: Though high-tech software and valuation models can provide accurate valuation, "there is no substitute for human judgment and experience" about location, physical condition and other factors in Mattox's view.
A statistical analysis and a "drive-by" photograph, for example, wouldn't tell you that the interior of the property was gutted.
For many situations, however, a limited-scope appraisal, at a fraction of the cost and time, may be all you really need.