The Hybrid Appraisal: It’s Cheaper, but Does It Protect Homebuyers?

May 22

If you need a mortgage to buy a home you have your eye on, it’s standard for your lender to order an appraisal of the property.

But when your lender says it’s ordering a hybrid appraisal instead of a traditional appraisal, what does that mean exactly?

Here’s what you need to know about this newer appraisal method and how it works to determine the value of the home you want to buy.

When you need a home appraisal

Before diving into the hybrid appraisal, it’s essential to understand how an appraisal is used in the mortgage process.

First, your lender needs to confirm the home is worth the agreed-upon sales price you offered to ensure you’re not overborrowing. Lenders have a vested interest in the home appraisal because it protects them from lending more money than they can recoup should you default on your loan and go into foreclosure.

The appraisal also protects you as a buyer. For instance, you can add an appraisal contingency clause allowing you to back out of the sale if the appraisal is too low to justify the purchase price.

What’s a hybrid appraisal?

In a traditional appraisal, an appraiser goes to a home and does a thorough walk-through, recording details like square footage, acreage, number of bedrooms and bathrooms, home improvements, and additions.

An appraiser also does a market data analysis, which values other homes in the area, and records the findings in the Uniform Residential Appraisal Report, or URAR.

The hybrid appraisal uses a form almost identical to the URAR, but the appraiser doesn’t go to the property.

“For a hybrid appraisal, the inspection, sketch, and photos are completed by a third party,” says Matthew Love, a HUD/FHA-approved Certified Residential Appraiser at Real Estate Bees.

“Another appraiser, an appraiser trainee, a real estate agent, or a home inspector can provide this service,” adds Love. “Just as a pit crew collaborates to complete tasks quickly and efficiently, a hybrid appraisal involves multiple professionals working together to complete the appraisal form.”

Why is the hybrid appraisal becoming popular?

The hybrid appraisal has been around for about 13 years and was mainly used for foreclosures and short sales.

“In these instances, a hybrid appraisal is to determine the home’s fair market value but also to confirm the true condition before the home goes into a short sale or foreclosure scenario,” says Alvaro Moreira, owner of the Georgia mortgage company Moreira Team.

And in 2018, Fannie Mae began testing its hybrid appraisal, a method it had worked on for years to speed up and modernize the traditional appraisal process.

But the hybrid appraisal really took off when the COVID-19 pandemic struck in 2020. Then, the hybrid became more relevant as a way to provide fast and flexible appraisals, relying more on technology when government stay-at-home orders prevented appraisers from entering people’s houses.

Is a hybrid appraisal accurate?

You might wonder how a hybrid stacks up against a traditional appraisal if no one is setting foot in your house. Could something get missed if the appraiser isn’t on-site and relying on third-party vendors?

The fact that hybrid appraisers have a high standard to meet might reassure you.

“Fannie Mae requires that data collectors be professionally trained, have annual background checks, and the knowledge necessary to complete the property data collection competently,” says Kenon Chen, executive vice president of strategy and growth at Clear Capital, an approved Fannie Mae vendor, who has completed more than 250,00 Government Sponsored Enterprise hybrid appraisals.

A hybrid appraisal is also less expensive and takes less time to complete as appraisers can focus on evaluating the local market and comparable sales instead of managing several appointments and driving to different homes.

According to Chen, there are generally fewer customer escalation issues due in part to the required robust, standardized data and the use of mobile technology, which drive a more consistent appraisal process in every neighborhood.

When is the hybrid appraisal used?

For the most part, the traditional appraisal remains the gold standard. But the pandemic catapulted the hybrid to the forefront.

“The knowledge, understanding, and conversations of hybrid appraisals are growing within the lending community,” says Moreira.

And to give the hybrid appraisal more clout, Fannie Mae recently officially included the hybrid appraisal for single-family sellers (manufactured homes, condos, co-ops, and nonresidential real estate are ineligible) as one of its accepted options to establish a property’s market value.

Deciding between a hybrid and traditional appraisal lies with the lender, not the buyer. The type of transaction, lenders’ rules, and the rules of the investors they sell their loans to determine the type of appraisal ordered. And both types must comply with the Uniform Standards of Professional Appraisal Practice.