Property Inspection Waivers: Are they really 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, initiated by Fannie Mae in 2017, allows you to move forward with your mortgage without an appraisal at all. It's a newer concept, and some lenders love it. But what motivated it, and what are the risks for you as a home buyer?
How do PIWs work?
Essentially, what your home is worth is determined by your lender. They determine its value systematically on a computer, using an online database from Fannie Mae instead of hiring a local appraiser to inspect the property you're about to buy. So, rather than a hands-on evaluation, lenders rely solely on computer processes to sort through a bank of previously collected data.
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Who is eligible 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 PIW. What's more, you need to have an excellent credit score and high assets to be approved.
Why is it applied?
The waiver omits appraisal expenses, and it can substantially pare down closing time for buyers. Outwardly, this process sounds like a bargain — but there's a bottom line you will want to recognize. With a PIW, your lender is NOT liable if the valuation ends up wrong. That's a bonus for lenders, but awful for the home buyer.
What could happen if I accept a Property Inspection Waiver?
The information in Fannie Mae's database is derived from previous appraisal reports done by professional appraisers. This data might be accurate to some extent, but by definition, it won't be an up-to-date evaluation of the quality of a building that changes from year by year. Without a professional valuation of your home, new improvements, remodels, or damages can certainly be omitted by the system.
Because of these deficiencies, it's easy to imagine a scenario where your home is valued too high by the program evaluating it. If that happens, you could run into issues when it's time to sell. You may not be able to receive what you paid for it, and you'll have no recourse against your lender when the money starts adding up.
What's the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it could save you a great deal more in the future. With a PIW, there is clearly no guarantee that you're receiving 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 need to know without a doubt that you're getting a fair deal, and working with a licensed appraiser is the safest 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 property, nothing is more precise than the careful examination of a licensed professional you trust.