Property Inspection Waivers: Worth the risk?
If you are getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver (PIW) on your application. The waiver program, started by Fannie Mae in 2017, allows you to move forward with your mortgage without getting an appraisal at all. It's a newer concept, and some lenders love it. But what motivated it, and what risks are there for you as a home buyer?
How does a Property Inspection Waiver work?
Basically, your lender decides what your home is worth. They determine its value automatically on a computer, using an online database from Fannie Mae rather than hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely entirely on computer algorithms to sift through a trove of previously collected information.
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Who can get a Property Inspection Waiver?
The program's limited right now, but it is including more types of transactions regularly. Your property needs to have entries in Fannie Mae's electronic database, so homes that have never been appraised aren't eligible for a Property Inspection Waiver. What's more, you're required to have an excellent credit score and high assets for approval.
Why is a PIW used?
The waiver removes appraisal fees, and it can reduce closing time considerably for buyers. Outwardly, this simplified process seems like a bargain — but there's a crucial point you'll want to consider. With a PIW, your lender is NOT held responsible if the assessment turns out to be wrong. That's an added bonus for lenders, but offers no protection to the buyer.
Could anything go wrong?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. it 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 changes over time. Without a professional valuation of your home, new improvements and/or damages can certainly be neglected by the system.
Due to these shortcomings, it's easy to imagine a situation where your property is priced too high by the computer program evaluating it. If that happens, you could run into snags when it's time to sell. You could wind up getting far less than you paid, and you'll have no recourse against your lender when the money starts adding up.
What is the bottom line?
A definitive appraisal usually costs a few hundred dollars, but it could save you thousands (or tens of thousands) in the future. With a PIW, there's no guarantee you're getting an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a property is a big decision with big consequences. You want to know with certainty that you're getting a fair deal, and working with a licensed appraiser is the smartest move you can make. Computers and algorithms are in almost every area of modern life, but when it comes to measuring the value of your home, nothing is more precise than the careful examination of a licensed professional you trust.