Property Inspection Waivers: Worth the risk?

If you're getting a loan for a home, your lender may give you the option to use a Property Inspection Waiver – or PIW – on your loan application. The waiver program, initiated by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal. It's a relatively new concept, and some lenders love it. But what caused the change, and what risks are associated?

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How does a Property Inspection Waiver work?

Essentially, determining what your house is worth falls into the hands of your lender. They determine the value systematically on a computer, employing an online database from Fannie Mae instead of hiring a local appraiser to personally inspect the home you're getting ready to buy. So, rather than a hands-on evaluation, lenders rely solely on computer processes to sift through a trove of previously collected data.

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Who can receive a PIW?

The program is currently limited, but it is being expanded regularly to include more types of transactions. Your property has to have entries in Fannie Mae's electronic database, so homes that 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 for approval.

Why do lenders use it?

The waiver cancels out appraisal fees, and it can trim closing time substantially for buyers. On the surface, this simplified process sounds like a good deal — but there's an essential point you will want to consider. With a PIW, your lender is NOT held responsible if the valuation winds up being wrong. That's a benefit to lenders, but offers zero protection to the buyer.

What could go wrong?

The information in Fannie Mae's database is pulled from past appraisal reports done by professional appraisers. it might be relatively accurate, but by definition, it will not be an up-to-date assessment of the quality of a building that's constantly changing. Without a professional appraisal of your home, new improvements and/or damages could certainly be neglected by the system.

Due to these shortcomings, you can imagine a situation where your home is priced too high by the program evaluating it. If that happens, you could run into problems 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 is the bottom line?

An accurate appraisal usually costs a few hundred dollars, but it can save you thousands in the long run. With a Property Inspection Waiver, there's no guarantee that you're receiving an honest valuation of your most expensive asset.

West Valley Appraisal Services can help.

Buying or refinancing a property is a big decision with grand consequences. You should know without a doubt that you're getting a fair deal, and working with a licensed appraiser is the smartest action you can take. 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 accurate than the careful examination of a licensed professional you trust.