Property Inspection Waivers: Worth the risk?
If you're getting a loan for a home, your lender might give you the option to use a Property Inspection Waiver (PIW) on your application. The program, introduced by Fannie Mae in 2017, allows you to move forward with your mortgage without needing an appraisal. It's a relatively new concept, and some lenders love it. But what drove it, and what are the associated risks?
How does a Property Inspection Waiver work?
Basically, the task of deciding how much your property is worth falls into the hands of your lender. They determine the value automatically on a computer, employing a database from Fannie Mae rather than hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a manual evaluation, lenders rely on computer methods to sift through a pile of previously collected information.
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Who's qualified for a PIW?
The program's limited right now, but it's progressively building 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. Additionally, you need to have an excellent credit score and high assets to be approved.
Why do lenders use it?
The waiver removes appraisal charges, and it can reduce closing time substantially for buyers. On the surface, this simplified process sounds like a good deal — but there's a key point you'll want to consider. With a PIW, your lender is NOT held responsible if the assessment is wrong. That's an added benefit for lenders, but affords no protection to the home buyer whatsoever.
Is there anything that could go wrong?
The information in Fannie Mae's database is derived from past appraisals completed by professional appraisers. it might be somewhat accurate, but by definition, it will not be an up-to-date evaluation of the exterior and interior quality in a building that's regularly changing. Without a professional appraisal of your home, new improvements and/or damages could certainly be left out by the system.
Because of these shortcomings, you can imagine an instance where your home is priced too high by the system evaluating it. If that happens, you could run into problems when it's time to list it for sale. You could end up settling for 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 appraisal typically costs a few hundred dollars, but it could save you thousands (or tens of thousands) in the long run. With a Property Inspection Waiver, there's no guarantee you're receiving an honest valuation of a premium asset.
Gregory James Company, Inc. can help.
Buying or refinancing a home is a big decision with grand consequences. You demand to know with certainty that you're receiving a fair deal, and working with a licensed appraiser is the safest action you can take. 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 precise than the careful assessment of a licensed professional you trust.