Are Property Inspection Waivers worth the risk?

If you are 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, initiated 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 motivated it, and what are the risks for you?

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How does a PIW work?

Essentially, the value of your home is established by your lender. They determine its value automatically on a computer, employing a database from Fannie Mae instead of hiring a local appraiser to personally inspect the home you're about to buy. So, rather than a hands-on evaluation, lenders rely solely on computer algorithms to sort through an array of previously collected data.

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Who's qualified for a PIW?

The program's currently limited, but it is including more transaction types continuously. Your property has to have entries in Fannie Mae's electronic database, so homes which have never been appraised aren't eligible for a PIW. What's more, you're required to have an excellent credit score and high assets for approval.

Why do lenders use Property Inspection Waivers?

The waiver omits appraisal charges, and it can substantially shorten closing time for buyers. On the surface, this simplified process seems like a good deal — but there's a bottom line you will want to recognize. 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 home buyer whatsoever.

What could go wrong?

The information in Fannie Mae's database is pulled from previous appraisals completed by professional appraisers. it might be accurate to some extent, but by definition, it won't be an up-to-date evaluation of the quality of a building that changes from year to year. Without a professional appraisal of your home, recent improvements, renovations, or damages could easily be missed by the system.

Because of these deficiencies, it's easy to imagine an instance where your home is valued too high by the program evaluating it. If that happens, you could run into problems when it's time to put it back on the market. 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.
 
Real Estate Agents
​Protect yourself from possible litigation when you are involved with a transaction that uses a property inspection waiver.  As discussed earlier the lender is not responsible if the valuation of the home is wrong in these circumstances, which leaves the real estate agents involved at risk.  Obtaining a real estate appraisal will protect you from future grief.  Disgruntled homeowners who realize at a later date that they paid too much for a home will be looking to hold professionals responsible for misrepresenting them.  Again, an appraisal will protect the agent, and inform the buyer/seller in these transactions of the market value, and will help to show that just because a one person is willing to pay more for a home than others, does not mean that is the fair market value.  In fact this value is specific to the buyer who may be purchasing on emotions rather than empirical data.  In addition, as a real estate agent you may never know which transactions used a property inspection waiver, further increasing your potential risk.  Please be aware of this new feature in the home buying landscape, and help to keep yourself and your agency safe from litigation.  As licensed/certified appraisers we have the knowledge, experience, and tools to defend our opinions of value in a court of law.  

What's the bottom line?

An accurate appraisal typically costs a few hundred dollars, but it can save you a lot more in the future. With a PIW, there's no guarantee you're receiving an honest valuation of your most expensive asset.

Harris Valuation Solutions can help.

Buying or refinancing a home is a big decision with big consequences. You should know with certainty that you're getting a fair deal, and working with a licensed appraiser is the smartest action you can take. Computers and algorithms have assumed a place in nearly every area of modern life, but when it comes to measuring the value of your property, nothing is more accurate than the careful assessment of a licensed professional you trust.