Property Inspection Waivers: Are they really worth the risk?

If you are buying or refinancing a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your application. The program, started by Fannie Mae in 2017, allows you to move forward with your mortgage without requiring an appraisal at all. It's a relatively new concept, and some lenders love it. But what caused it, and what are the associated risks?

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How does a Property Inspection Waiver work?

Basically, deciding how much your home is worth falls into the hands of your lender. They determine its value systematically on a computer, employing an online database from Fannie Mae in lieu of hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a firsthand evaluation, lenders rely entirely on computer methods to sort through a bank of previously collected data.

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Who can receive a Property Inspection Waiver?

The program is limited right now, but it is including more transaction types regularly. Your property has to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. Additionally, you're required to have an excellent credit score and high assets to be approved.

Why do lenders use it?

The waiver eliminates appraisal charges, and it can considerably reduce closing time for buyers. At first glance, this simplified process seems like a bargain — but there's a bottom line you'll want to recognize. With a PIW, your lender is NOT held liable if the valuation turns out to be wrong. That's a benefit to lenders, but affords zero protection to the buyer.

Is there anything that could go wrong?

The information in Fannie Mae's database is pulled from previous appraisals completed by professional appraisers. it might be somewhat accurate, but it won't necessarily be a current evaluation of the quality of a building that changes from year to year. Without a professional appraisal of your home, recent improvements, renovations, or damages could certainly be left out by the system.

Because of these deficiencies, it's easy to imagine a scenario where your home is priced too high by the computer program assessing it. If that happens, you could run into issues when it's time to sell. You could end up settling for far less than you paid, and you'll have no recourse against your lender when the money starts adding up.

What's the bottom line?

An accurate, professional appraisal typically costs a few hundred dollars, but it can save you a substantial amount more in the long run. With a PIW, there is no guarantee that you're getting an honest valuation of your most expensive asset.

Gregory James Company, Inc. can help.

Buying or refinancing a house is a big decision with big consequences. You demand to know without a doubt that you're receiving a fair deal, and working with a licensed 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 home, nothing is more accurate than the careful examination of a licensed professional you trust.