Appraisal Waiver - Good or Bad?
If you're getting a loan for a home, your lender may give you the option to use an Appraisal Waiver, or Property Inspection Waiver (PIW), on your loan application. The waiver program, begun by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal at all. Some lenders love it. But what prompted the change, and what risks are there for you?
What Is An Appraisal Waiver?
An appraisal waiver is an offer to waive the appraisal for eligible transactions, including mortgages purchased by Fannie Mae and Freddie Mac. Instead of an appraisal, valuations supporting the mortgages are performed by Fannie and Freddie in-house, using proprietary analytics and deep stores of property data in their databases of information.
Who Can Get An Appraisal Waiver?
The program is currently limited, but it is progressively building to include more transaction types. According to FannieMae.com, appraisal waiver requirements:
Who Is NOT Eligible For An Appraisal Waiver?
According to FannieMae.com, the majority of transactions will not receive a PIW offer, which means they will require an appraisal by a qualified residential appraiser to establish the market value. The following are not eligible for a PIW offer:
How Does An Appraisal Waiver Work?
Basically, the task of deciding how much your home is worth falls into the hands of your lender. They determine the value systematically on a computer, employing an online database from Fannie Mae rather than hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely solely on computer processes to sort through an array of previously collected data.
Different Than An Appraisal Waiver Letter
A Waiver Letter is different than the Appraisal Waiver, or PIW, we are talking about here. A Waiver Letter is a notice to the lender where the loan applicant waives his/her right to receive the appraisal at least three business days prior to loan closing.
In this scenario, the appraisal still happens - but the loan applicant is waiving their right to review it. Why? If the appraisal comes in late, it can delay the closing. But signing away the right to review means you (the loan applicant) have no recourse if you find out from the appraisal that you have overpaid for the home.
Why Do Lenders Use Appraisal Waivers?
The waiver cancels out appraisal charges, and it can cut closing time substantially for buyers. At first glance, this process seems like a bargain - but there's a key point you'll want to recognize. With an Appraisal Waiver, your lender is NOT held liable if the valuation ends up wrong. That's an added benefit for lenders, but a disadvantage to the home buyer.
What Could Go Wrong If I Agree To An Appraisal Waiver?
The information in Fannie Mae's database is pulled from previous appraisal reports done by professional appraisers. This data might be accurate to some extent, but by definition, it will not be an up-to-date assessment of the exterior and interior quality in a building that's constantly changing. Without a professional appraisal of your home, recent improvements and/or damages could certainly be overlooked by the system.
Due to these deficiencies, you can imagine a scenario where your property is priced too high by the system assessing it. If that happens, you could run into snags when it's time to list it for sale. You might not be able to get what you paid for it, and you'll have no recourse against your lender when the money starts adding up.
Can I Still Get An Appraisal If The Sale Qualifies For An Appraisal Waiver?
Yes, in fact - we recommend it. Buying a property without an independent appraisal is risky. Just because the homes in neighboring communities value at a similar price range, doesn’t mean your home value is the same. Buying or refinancing a house is a big decision with big consequences. You want to know without a doubt that you're receiving a fair deal.
What's The Bottom Line?
Don't risk your investment with an Appraisal Waiver (or PIW)
An accurate appraisal usually costs a few hundred dollars, but it could save you a lot more in the future. With an Appraisal Waiver, there's no guarantee you're receiving an honest valuation of a premium asset.
Master Appraisal Services can help.
Buying or refinancing a house is a big decision with big consequences. You want to know without a doubt that you're receiving a fair deal, and working with a state certified appraiser is the safest way to go. Computers and algorithms are in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.
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