Are Property Inspection Waivers worth the risk?
If you're buying or refinancing a home, your lender might give you the option to use a Property Inspection Waiver – or PIW – on your application. The waiver program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without needing an appraisal at all. It's a relatively new concept, and some lenders love it. But what drove the change, and what are the associated risks?
How do Property Inspection Waivers work?
Basically, what your home is worth is established by your lender. They determine its value automatically on a computer, using a database from Fannie Mae instead of hiring a local appraiser to inspect the property you're getting ready to buy. So, rather than a manual evaluation, lenders rely on computer methods to sort through a pile of previously collected data.
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Who can get a PIW?
The program is currently limited, but it is expanding continually to include more types of transactions. Your property has to have entries in Fannie Mae's electronic database, so homes which 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 to be approved.
Why is it applied?
The waiver cancels out appraisal charges, and it can reduce closing time substantially for buyers. Outwardly, this streamlined 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 assessment turns out to be wrong. That's great for lenders, but a disadvantage to the buyer.
What could go wrong if I accept a Property Inspection Waiver?
The information in Fannie Mae's database is pulled from past appraisal reports completed by professional appraisers. This data might be accurate to a degree, but by definition, it won't be a current assessment of the quality of a building that's regularly changing. Without a professional appraisal of your home, new improvements and/or damages can absolutely be left out by the system.
Due to these deficiencies, you can imagine a scenario where your property is valued too high by the program evaluating it. If that happens, you could run into issues when it's time to put it back on the market. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money falls short.
What is the bottom line?
A definitive appraisal typically costs a few hundred dollars, but it could save you thousands (or tens of thousands) in the long run. With a PIW, there is clearly no guarantee that you're getting an honest valuation of your most expensive 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 receiving 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 property, nothing is more precise than the careful examination of a licensed professional you trust.