Property Inspection Waivers: Are they really 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 loan application. The PIW program, introduced by Fannie Mae in 2017, allows you to be approved for a mortgage without an appraisal at all. It's a newer concept, and some lenders love it. But what drove it, and what risks are there for you as a home buyer?

How does a PIW work?

Essentially, what your home is worth is determined by your lender. They determine the value automatically on a computer, employing an online database from Fannie Mae instead of hiring a local appraiser to personally inspect the property 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 data.

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Who can receive a PIW?

The program's limited currently, but it's including more transaction types regularly. Your property has to have records in Fannie Mae's electronic database, so homes which have never been appraised are not eligible for a PIW. Additionally, you need to have an excellent credit score and high assets for approval.

Why do lenders use Property Inspection Waivers?

The waiver omits appraisal expenses, and it can substantially pare down closing time for buyers. On the surface, this streamlined process sounds like a bargain — but there's a vital point you will want to keep in mind. With a PIW, your lender is NOT held responsible if the assessment winds up being wrong. That's an added bonus for lenders, but offers zero protection to the buyer.

Is there anything that could go wrong?

The information in Fannie Mae's database is pulled from past appraisals done by professional appraisers. it might be accurate to some extent, but it won't necessarily be a current evaluation of the quality of a building that's constantly changing. Without a professional valuation of your home, new improvements and/or damages can easily be left out by the system.

Because of these shortcomings, it's easy to imagine a situation where your property is priced too high by the computer program evaluating it. If that happens, you could run into issues when it's time to sell. You may not be able to get what you paid for it, and you'll have no recourse against your lender when the money starts adding up.

What's the bottom line?

A definitive appraisal usually costs a few hundred dollars, but it can save you thousands (or tens of thousands) in the long run. With a PIW, there is simply no guarantee you're receiving an honest valuation of your most expensive asset.

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Buying or refinancing a house is a big decision with big consequences. You demand to know with certainty that you're getting a fair deal, and working with a licensed appraiser is the safest move you can make. Computers and algorithms are 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 examination of a licensed professional you trust.