Drive-By Appraisals for Home Equity Loans: Everything You Need to Know

If you’re considering taking out a home equity loan or home equity line of credit (HELOC), you’ll likely need to get an appraisal on your home. But you may be able to save time and money with a drive-by appraisal instead of a full interior inspection.

In this comprehensive guide, I’ll explain what a drive-by appraisal is, when it can be used for home equity loans, the pros and cons, and what to expect from the process

What is a Drive-By Appraisal?

A drive-by or exterior-only appraisal is an alternative to a standard full home appraisal With a drive-by appraisal, the appraiser only inspects the exterior of the home and does not go inside

The appraiser will drive by the home, take photos of the outside, evaluate the condition of the roof, siding, windows, and other external features. They’ll also look for any major issues visible from the street.

In addition to visually assessing the exterior, the appraiser researches public records about the property. This includes tax assessments, Multiple Listing Service (MLS) listings, and previous sales prices.

They use this data along with comparable home sales in the neighborhood to estimate the market value of the property. However, without viewing the interior, a drive-by appraisal provides a more limited valuation.

When Can Drive-By Appraisals Be Used for Home Equity Loans?

Lenders typically require a full appraisal for major mortgage transactions like purchases and refinances. However, drive-by appraisals are often permitted for home equity loans and HELOCs.

Here are some common situations when a drive-by appraisal may be ordered for home equity lending:

• Borrower is only seeking a small loan amount compared to their home value
• Home was recently purchased so value is already established
• Borrower had a full appraisal done in the past 6-12 months
• Property is located in a rural area with limited comparable sales
• Extenuating circumstances prevent a full interior inspection

As long as there is sufficient data to estimate the value and the loan amount poses little risk, a drive-by appraisal can give lenders enough information to approve a home equity loan.

The Pros and Cons of Drive-By Appraisals

Drive-by appraisals offer some advantages but also have downsides to consider.

Pros

• Less expensive: Drive-by appraisals typically cost $100-$150 compared to $300-$500 for a standard appraisal.

• Faster turnaround: Without scheduling an interior inspection, drive-by appraisals can often be completed within 1-3 days.

• More convenient: Homeowners don’t have to be present or prepare their home for an appraiser coming inside.

Cons

• Less accurate: Without viewing the interior, drive-by appraisals may miss issues that impact value.

• Higher risk for lenders: There is greater potential for appraisal fraud since the appraiser does not verify the interior condition.

• Not permitted for high loan amounts: Most lenders limit drive-by appraisals to equity loans below $100,000.

So while drive-by appraisals provide cost and time savings, the valuation carries more uncertainty. Lenders must balance these trade-offs when ordering appraisals.

What Can Impact a Drive-By Home Equity Appraisal?

Even though the appraiser does not go inside the home, there are still several factors that can affect a drive-by appraisal.

• Neighborhood trends: Values of comparable homes and area demand impact appraised values.

• Exterior condition: Visual signs of damage, dated finishes, remodeling, or additions observed from the street.

• Public records: Discrepancies between tax assessments, MLS listings, and actual condition.

• Loan amount: Appraisers may be more conservative with valuations for larger equity loans.

• Local market dynamics: Housing inventory, sale prices, and economic conditions can influence appraised values.

• Recent improvements: Upgrades that aren’t reflected in public records yet, like a new roof.

What to Expect with a Drive-By Home Equity Appraisal

If your lender orders a drive-by appraisal for your home equity loan, here’s an overview of what you can expect:

• The lender will contact an appraiser to inspect the exterior of your home. This will occur without you being present.

• The appraiser will drive by the property, take photos of all sides, and assess the home’s external condition.

• They will research public records for details about the home’s size, layout, prior sales, tax assessments, and more.

• Nearby comparable home sales will be evaluated to gauge current market values in your neighborhood.

• You may need to provide information about any recent updates or issues not reflected in public data.

• The appraiser will analyze the collected data and photos to estimate your home’s market value.

• Typically within 1-3 business days, they will submit the completed drive-by appraisal report to your lender.

• The lender will review the appraisal to ensure it supports the requested loan amount before final approval.

Alternatives to Drive-By Home Equity Appraisals

In some cases, a lender may not accept a drive-by appraisal for a home equity loan or HELOC. Here are some alternatives they may consider instead:

• Full interior appraisal: A standard appraisal with an interior and exterior inspection provides the most accurate valuation.

• Exterior-only appraisal with interior photos: The appraiser takes photos of the inside to document condition but does not enter the home.

• Previous appraisal: The lender may accept a recent full appraisal done within the past 6-12 months instead.

• Automated valuation model: Computerized AVMs estimate value based on public records, MLS data, and analytics.

• Desktop appraisal: An appraiser determines value without visiting the property using data, photos, and comparable sales research.

• Tax assessment value: In some cases, a recent property tax assessment can establish value for a smaller home equity loan.

Talk to your lender about appraisal requirements when applying for a home equity loan or HELOC. While drive-by appraisals offer convenience, be prepared for alternatives if needed.

The Bottom Line

Drive-by appraisals are a quick and low-cost option that lenders may accept for home equity lending situations. While not as thorough as a full interior appraisal, they can provide enough of a valuation for smaller equity loans when recent home purchase data is available.

However, borrowers should understand the limitations and risks of drive-by appraisals before relying on them to establish equity. Consult with an experienced loan officer to ensure you meet all appraisal requirements when tapping home equity.