Are Property Inspection Waivers worth the risk?

If you are buying or refinancing 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. It's a newer concept, and some lenders love it. But what caused the change, and what are the associated risks?

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How do Property Inspection Waivers work?

Essentially, what your home is worth is established by your lender. They determine its value systematically on a computer, employing an online 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 hands-on evaluation, lenders rely on computer processes to sift through a bank of previously collected information.

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Who's qualified for a Property Inspection Waiver?

The program is currently limited, but it is including more transaction types regularly. Your home 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 for approval.

Why do lenders use PIWs?

The waiver cancels out appraisal fees, and it can substantially reduce closing time for buyers. At first glance, this simplified process seems like a bargain — but there's a key point you will want to consider. With a PIW, your lender is NOT held responsible if the valuation is wrong. That's great for lenders, but affords no protection to the buyer whatsoever.

What could go wrong if I accept a Property Inspection Waiver?

The information in Fannie Mae's database is pulled from past appraisals completed 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 exterior and interior quality in a building that's constantly changing. Without a professional appraisal of your home, recent improvements and/or damages can absolutely be missed by the system.

Because of these shortcomings, it's easy to imagine an instance where your property is valued too high by the system assessing it. If that happens, you could run into issues when it's time to list it for sale. You could wind up settling for far 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, professional appraisal usually costs a few hundred dollars, but it can save you a lot more in the future. With a Property Inspection Waiver, there's no guarantee 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 grand consequences. You want 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 have assumed a place 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.