What Is An Appraisal Waiver

Jul 27, 2023 By Susan Kelly

Are you considering purchasing a home but need help with what to do regarding appraisals? If yes, an appraisal waiver may be the right choice. An appraisal waiver allows buyers and sellers to circumvent the need for an appraiser to determine the value of a home.

Not only can these waivers save time and money, but they offer several other advantages as well. This post will provide information about appraisal waivers, how they work, and the benefits that come along with them. With this knowledge, you'll be equipped with all the necessary information to decide if requesting an appraisal waiver is right for your situation.

Appraisal Waiver

An appraisal waiver is a document signed by a home's buyer and seller. This document waives the requirement for an appraiser to determine the home's value.

Instead, it relies on other factors, such as recent sales prices in the neighborhood or details from an automated valuation model (AVM). An appraisal waiver eliminates the need for an appraiser to inspect the property, which can save time and money.

How Do Appraisal Waivers Work?

When requesting an appraisal waiver, lenders often use one of two methods: self-employed appraisers or automated valuation models (AVMs). Self-employed appraisers only look at comparable sales in the area to establish a market value for your home.

An AVM is an automated system that uses public records and other data to determine the value of your property.

In either case, the lender will review the information provided by the appraiser or AVM to decide whether to approve a loan for the homebuyer.

Who Can Get An Appraisal Waiver?

Appraisal waivers are not available for all buyers and sellers. Generally, they’re only available in certain circumstances. Some of these requirements include:

  • The buyer must have a good credit score.
  • The borrower must be making a down payment of at least 20 percent.
  • The home must be in an area where prices have steadily increased.
  • The seller must agree to the terms of the appraisal waiver.

Benefits Of Appraisal Waivers

  • Saves Time: Appraisal waivers can speed up the closing process by eliminating the need for an appraiser to inspect the property.
  • Saves Money: Since appraisal fees are waived, buyers and sellers can save on costly fees.
  • Flexible: Appraisal waivers can be used in many situations, including refinancing or purchasing a home.
  • No Property Inspection Required: No physical inspection of the property is required when using an appraisal waiver - instead, comparable sales data is relied upon to determine value.
  • Quicker Closing Processes: As mentioned above, appraisal waivers expedite closing since there’s no wait for an appraiser to inspect the property.
  • Helps Sellers: Appraisal waivers are especially advantageous for sellers since they can move forward with a sale even if their home’s value is lower than expected.
  • Fewer Contingencies: When buyers use an appraisal waiver, they don’t have to worry about appraisal contingencies in their offer - this makes it easier and faster to negotiate and close on a sale.
  • Easy To Obtain: Appraisal waivers are relatively easy to obtain if the buyer meets certain criteria, such as a good credit score and making a down payment of at least 20 percent.
  • More Buyer Confidence: Appraisal waivers can also give buyers additional confidence in their purchase, as they know that their loan will not be subject to any changes due to an appraisal. When it comes down to it, appraisal waivers can be incredibly beneficial for both buyers and sellers.

An appraisal waiver offers several advantages to both buyers and sellers. From saving time and money to fewer contingencies, there are many reasons why you should consider using an appraisal waiver when purchasing a home. With this knowledge, you can decide whether or not requesting an appraisal waiver is right for your situation.

Drawbacks Of Appraisal Waivers

Along with the advantages of appraisal waivers, there are some potential drawbacks.

  • Limited Availability: As mentioned above, not all buyers and sellers meet the requirements for an appraisal waiver. This appraisal waiver can limit its usefulness in certain situations.
  • Incorrect Valuations: Without an appraiser's physical inspection of the property, there’s a chance that the value estimated through comparable sales or AVMs could be inaccurate.
  • Lack Of Market Analysis: With an appraisal waiver, there’s no way to accurately assess current market conditions since no appraiser inspects the property.
  • Potential For Fraud: Since appraisal waivers rely on data rather than inspections, there’s a potential for fraudulent activity if the data is inaccurate.
  • Not All Lenders Accept Appraisal Waivers: Not all lenders accept appraisal waivers, so it’s important to check with your lender before deciding.
  • Low Home Values Could Result In Denial Of Loan: If the estimated value of a home is too low, it could result in the loan being denied - this could put the buyer in a difficult financial situation if they’ve already secured a loan pre-approval.

Although appraisal waivers offer several advantages, some potential drawbacks should be considered. It’s important to research the pros and cons before deciding if requesting an appraisal waiver is right for you.

Who Is NOT Eligible For An Appraisal Waiver?

Appraisal waivers are not available for all buyers and sellers. In general, they’re only available under certain conditions. Some of these requirements include:

  • The buyer must have a good credit score.
  • The borrower must be making a down payment of at least 20 percent.
  • The home must be located in an area where prices have steadily increased.
  • The seller must agree to the terms of the appraisal waiver.
  • Those who don't meet these criteria may not be eligible for an appraisal waiver. If you're purchasing a home that requires repairs or renovations, lenders will likely require an appraiser to inspect the property before approving.

However, if FHA or VA backs your loan, you may still be eligible for an appraisal waiver.

Some lenders don't offer appraisal waivers due to their internal policies. It's important to check with your lender before proceeding with a purchase to ensure you're aware of any restrictions or requirements they may have in place.

Why Do Lenders Use Appraisal Waivers?

Lenders use appraisal waivers to minimize costs and expedite the homebuying process. Since an appraiser isn't needed, lenders don't have to pay for their services or wait for them to inspect the property.

This can save time and money, which benefits buyers and sellers. Additionally, an appraisal waiver reduces the risk of a borrower defaulting on their loan due to an inflated appraisal value.

FAQS

Why do banks waive appraisal?

Banks waive appraisals to save time and money and reduce the risk of a borrower defaulting on their loan due to an inflated appraisal value. Additionally, it helps speed up the closing process by eliminating the need for an appraiser to inspect the property.

What happens if the appraisal is lower than the offer?

If the appraisal is lower than the offer, the lender may require the buyer to increase their down payment or renegotiate with the seller. They may decide not to proceed with the loan if they believe too much risk is involved.

What is the next step after the appraisal?

The next step after the appraisal is typically closing on the loan. This involves signing all the necessary documents and transferring funds from the lender to the seller. Once this is done, you will officially own your new home.

Conclusion

An appraisal waiver allows buyers to bypass the formality of a traditional appraisal and can significantly reduce the costs of purchasing a home. This process has the potential to drastically streamline the home-buying process. However, buyers must thoroughly research this option before deciding if it is right. Unfortunately, lenders have strict standards that typically limit eligibility for these waivers, but fortunately, those who qualify can benefit from these waiving processes.

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