What is an appraisal waiver?
Are you buying a house, or maybe even refinancing a house and a friend or Realtor has mentioned the use of an appraisal waiver? It is also referenced as a Property Inspection Waiver or PIW as well. Not just any property, or any transaction can get an appraisal waiver! An appraisal waiver is when the value that the loan officer has put into the system is accepted through automated underwriting and the system does not require an appraisal to validate the value. When we refer to the automated underwriting, we are referring to Fannie Mae and Freddie Mac’s system (pictured below). The majority of home loans in America require that the application be uploaded into one of those systems to run the file. The automated underwriting system reads all the details from the application an issues an approval or a denial…little more complicated than that, but you get the idea. In this approval it tells the loan officer what documents and processes are needed to document the file, and whether a full appraisal is needed, or if the property is eligible for an appraisal waiver. It is important to understand that if you are not putting down 20% or in a refinance your loan to value isn’t near or better than 80%, the likelihood of getting an appraisal waiver is not good.
Appraisal Waiver Pros vs Cons
Appraisal Waiver Pros
Speed, money savings and discerned value:
SPEED– In a market like the one we have in Flower Mound and the surrounding Dallas area where the appraisers are very busy, the one variable in a purchase transaction that slows down the process is the appraisal. If you receive an appraisal waiver, there is no wait time for an appraiser to do their job…appraisals many times take 6-15 business days to get completed, or more in some cases. This means the contract to close process can happen as much as a week faster.
Money Savings– Appraisal costs have skyrocketed over the last 15 years as the government has gotten involved with compliance and such, and an average appraisal now costs no less than $500. As the home or lot size increases, these costs can easily go over the $600 mark. With an appraisal waiver, there is no cost for an appraisal, and the result is an immediate savings for the borrower.
Discerned Value– The value as it relates to qualifying for a mortgage has a limitless number of points of significance within the process of buying a home. I could write 10 different blog posts just on that. For this post, I want to point out how it removes doubt between the buyer and seller parties in what direction the transaction might turn. Many times a seller accepts a purchase price offer on a house at the top of the market, and in that case, there is a risk that the buyer’s appraisal could come in below the accepted purchase price. When that happens, sometimes that buyer and seller have to go “back to the drawing board” to renegotiate the purchase price, for the obvious reasons. If the buyer does not have the extra money to bring to closing to offset the difference in the value vs the purchase price, the seller may need to come down on the price or cancel the contract and put their house back on the market. The appraisal waiver illuminates all of that.
Appraisal Waiver Cons
When an appraiser does the physical inspection of the home, they have a limited responsibility to notice and reference possible structural deficiencies in the home…the purpose is to bring the underwriter’s attention to things that might influence the value or livability of the home. Without an appraisal, there is less checks and balances validating the value of the home. Another more obvious negative effect that might come from an appraisal waiver is, you are not getting a certified researched appraised value delivered to you and it is possible you are buying the home over value…or just piece of mind.
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