Property Inspection Waivers: Are they worth the risk?

If you are getting a loan for a home, your lender might give you the option to use a Property Inspection Waiver – or PIW – on your application. The waiver program, started by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal. It's a newer concept, and some lenders love it. But what prompted it, and what are the associated risks?

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How do PIWs work?

Basically, the value of your home is determined by your lender. They determine its value automatically on a computer, using a database from Fannie Mae instead of hiring a local appraiser to personally inspect the home you're about to buy. So, rather than a hands-on evaluation, lenders rely entirely on computer algorithms to sort through an array of previously collected data.

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Who's qualified for a PIW?

The program's limited right now, but it is including more transaction types continuously. Your property needs to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a Property Inspection Waiver. Additionally, you're required to have an excellent credit score and high assets for approval.

Why do lenders use Property Inspection Waivers?

The waiver removes appraisal charges, and it can trim closing time considerably for buyers. On the surface, this simplified process sounds like a bargain — but there's an essential point you will want to recognize. With a PIW, your lender is NOT held liable if the valuation ends up wrong. That's a benefit to lenders, but offers no protection to the buyer.

What could go wrong?

The information in Fannie Mae's database is derived from past appraisal reports completed by professional appraisers. This data might be somewhat accurate, but it won't necessarily be a current evaluation of the exterior and interior quality in a building that's constantly changing. Without a professional valuation of your home, new improvements and/or damages could easily be neglected by the system.

Due to these shortcomings, you can imagine an instance where your home is priced too high by the computer program evaluating it. If that happens, you could run into issues when it's time to put it back on the market. You could wind up getting less than you paid, and you'll have no recourse against your lender when the money falls short.

What is the bottom line?

An accurate appraisal usually costs a few hundred dollars, but it could save you a lot more in the future. With a Property Inspection Waiver, there's absolutely no guarantee that you're getting an honest valuation of your most expensive asset.

Gregory James Company, Inc. can help.

Buying or refinancing a home is a big decision with grand consequences. You should know with certainty that you're getting a fair deal, and working with a licensed appraiser is the safest action you can take. Computers and algorithms have assumed a place 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.