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 PIW program, started 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 prompted it, and what are the associated risks?

How do Property Inspection Waivers work?

Essentially, the value of your home is established by your lender. They determine the value automatically on a computer, using a database from Fannie Mae in lieu of hiring a local appraiser to inspect the property you're about to buy. So, rather than a firsthand evaluation, lenders rely entirely on computer algorithms to sort through a trove of previously collected data.

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Who can get a Property Inspection Waiver?

The program is currently limited, but it is progressively building to include more transaction types. Your home needs to have entries in Fannie Mae's electronic database, so homes that have never been appraised are not eligible for a PIW. What's more, you need to have an excellent credit score and high assets for approval.

Why is it applied?

The waiver removes appraisal charges, and it can substantially reduce closing time for buyers. On the surface, this simplified process seems like a good deal — but there's a crucial point you will want to recognize. With a PIW, your lender is NOT held responsible if the assessment is wrong. That's great for lenders, but terrible for the buyer.

Could anything go wrong?

The information in Fannie Mae's database is pulled from past appraisals completed by professional appraisers. This data might be somewhat accurate, but by definition, it will not be a current evaluation of the exterior and interior quality in a building that changes over time. Without a professional appraisal of your home, new improvements, remodels, or damages could certainly be left out by the system.

Due to these deficiencies, it's easy to imagine a situation where your property is valued too high by the computer program assessing it. If that happens, you could run into issues when it's time to sell. You might not be able to receive what you paid for it, and you'll have no recourse against your lender when the money falls short.

What is the bottom line?

An accurate appraisal typically costs a few hundred dollars, but it could save you a great deal more in the future. With a PIW, there's clearly no guarantee that you're receiving an honest valuation of a premium asset.

Astute Appraisals, 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 getting a fair deal, and working with a licensed appraiser is the smartest move you can make. Computers and algorithms have assumed a place 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.