Let’s say you’ve been trying to buy a house and, even though you have a sizable down payment, you’re having trouble making the winning offer.
The real estate market is ultra-competitive for buyers right now — and it has been since early 2020. Knowing that you’ll need a little something extra to make your purchase offer stand out from the rest, your agent suggests talking to your mortgage lender about a built-in appraisal waiver.
An appraisal waiver can give you a competitive edge, but you’ll want to know exactly what it is, how to get one, and whether it’s a good idea. Fortunately, we’re here to help!
Here’s what you need to know about appraisal waivers.
What’s an appraisal and why do you need one?
An appraisal is an assessment of a home’s value, carried out by a trained and qualified appraiser who functions as a third party in the transaction.
Banks don’t want to loan more money for a house than it’s worth, so when you’re getting a mortgage, your lender will order an appraisal to verify the value of the home.
If you’re paying cash, there’s no outright need for an appraisal unless you want one simply to satisfy your own curiosity about the home’s value.
How do appraisers figure out what a house is worth? Appraisers use comparable properties and their understanding of the current real estate market to determine the value of a particular home.
As with everything in real estate, there are lots of variables. There’s no hard-and-fast formula an appraiser can use to determine a for-sure, indisputable value — so instead, they use the most current and relevant information available to them to make a fair assessment and report back to the lender.
What’s an appraisal waiver, and who decides whether you get one?
An appraisal waiver is what it sounds like: lender-issued approval to waive the in-person appraisal.
It’s rare, but sometimes a lender is confident enough in the value of the home — in relation to the loan amount — that they’ll agree to waive the appraisal to help expedite the closing process.
“The lender is basically saying, ‘We’re solid, we know this home is worth what you’re offering for it, and we don’t even need the [in-person] appraisal,’” explains Amber Carlton, a real estate agent in Fargo, North Dakota, with ten years of experience.
Carlton is generally in favor of using appraisal waivers when a lender provides the option — it’s one less thing you’ll have to pay for and wait on as a buyer, and it’s one less thing that can potentially throw a wrench in the deal if the house happens to appraise for less than your offer.
A lender will often use an automated underwriting system to assess the home’s value.
These automated valuation systems utilize the technology behind home value websites and, while they’re not without a margin of error, they can be pretty accurate when analyzing homes that are currently on the market.
Of course, to snag an appraisal waiver, you’ll need to be a well-qualified buyer, and the lender will often require that you put down at least 20% on the home.
“Usually when we see appraisal waivers, it’s going to be with a larger down payment, a really good credit score, and a home that sold fairly recently,” says Carlton. “That’s kind of the perfect combination to see an appraisal waiver — though it doesn’t mean you’re going to get one.”
And it’s not always up to the lender
Though a knowledgeable lender working with a conventional loan may have some ability to waive the appraisal when the numbers favorably align, sometimes an appraisal waiver is simply not an option.
Not all properties are eligible for appraisal waivers, and eligibility is often determined by Fannie Mae and Freddie Mac underwriting software and the housing date that have — Desktop Underwriter and Loan Product Advisor, respectively.
A lender who uses these programs (and most do) will load your loan application details into the relevant underwriting system — along with the home’s address and purchase price you’ve agreed to pay — and then an algorithm will comb through millions of sales and valuation records to make an assessment of the home’s value.
As Carlton mentioned, if your hopeful home has recently sold, this can help secure an appraisal waiver because there’s likely a prior appraisal already on file. Whether it’s an automated underwriting system or a live human examining the numbers, a semi-recent appraisal can be enough to confirm that, yes, this house is worth what you’re offering to pay.
(That said, if a previous appraisal shows up in Fannie Mae’s Collateral Underwriter system and that appraisal overvalued the house, it won’t be eligible for an appraisal waiver regardless of what the market is dictating today.)
So if the house qualifies and the price is right, then you may be offered the choice to waive the appraisal — and that part is up to you.
If you have a large down payment or if you have extra money, and you really, really want the home, you could write into the offer that you’re not contingent on the appraisal.
- Amber Carlton Real Estate AgentCloseAmber Carlton Real Estate Agent at Berkshire Hathaway HomeServices Premier Properties
- Years of Experience 10
- Transactions 133
- Average Price Point $244k
- Single Family Homes 130
Which homes or deals are qualified for appraisal waivers?
Some homes, as we noted, simply won’t qualify for appraisal waivers. But some will, and a few that are most likely to fall into this category include:
- New construction homes, which often have an “as-is” prior appraisal on file
- Deals where a buyer is putting down at least 20% of the home’s value, as determined by an automated underwriting system
- Homes in “high-needs” rural locations
If you’re buying in what the Federal Housing Finance Agency considers a high-needs rural area and putting down at least 3% of the home’s value, then you also may qualify for an appraisal waiver.
But, overall, most transactions will not receive an appraisal waiver — this isn’t something on which you can hinge your whole offer.
That said, there are ways to help make your purchase offer all the more enticing — even if a waiver doesn’t come into play.
“If you have a large down payment or if you have extra money, and you really, really want the home, you could write into the offer that you’re not contingent on the appraisal,” says Carlton. That means you’d be responsible for covering the appraisal gap, if there is one.
“If you’re trying to make your best offer, you could offer above the asking price and say that you’ll cover the difference even if the home doesn’t appraise.”
And in a hot market where homes are moving more quickly than statistics can keep up with, it’s possible that almost any house could appraise lower than its market value. Having the willingness to cover a difference in numbers can help eliminate concerns for the seller and bump your offer to the top of the pile.
Why might you want to waive the appraisal?
Not having to worry about an appraisal can help make your purchase offer more enticing.
You can probably close faster because there’s one less process to wait on, and there’s no worry of the home not clocking in at a particular valuation the lender needs to see in order to approve your loan.
This is why it helps to have a large enough down payment to cover any appraisal gaps or discrepancies — if you want the home badly enough that you don’t mind paying a few thousand dollars over what an appraisal report suggests, then there’s no chance of a low appraisal derailing your purchase. But with an appraisal waiver, you don’t have to worry about it!
Why might you not want to waive the appraisal?
The option to save hundreds of dollars on the cost of an appraisal and eliminate a line item from your already lengthy to-do list when buying a home seems like a no-brainer.
But taking the option to waive an appraisal may not always be the best move.
Houses can appreciate quickly in a seller’s market, but even if you have the cash to put up a generous down payment and aren’t worried about what the real estate market might be doing when it’s time to sell, you may find comfort in actual numbers at the time of purchase.
“I’m not a big fan of appraisal waivers,” says home appraiser Nick Stoddard. “Buyers might save some money by skipping the appraisal process, but there’s no guarantee they’ll receive an honest valuation of their home without it.”
Stoddard encourages buyers to have an appraisal done “to be on the safe side, even if it costs an extra few hundred dollars.”
It’s certainly a step that can be debated in both directions, so if an appraisal waiver turns out to be an option for you and you’re not sure what to do — consult your real estate agent for advice.
“I would personally take the waiver as it’s one less headache, but if you have concerns as a buyer, if you want that reassurance — absolutely, go ahead and get the appraisal,” says Carlton.
“You don’t have to take the waiver.”
What happens if an appraisal waiver is offered and accepted?
So your lender has offered an appraisal waiver and you’ve decided to accept — now what?
You will subsequently confirm that you’re aware of and okay with the fact that your lender isn’t requiring an in-person appraisal on the home you’re about to purchase.
If you’re buying a rural property in accordance with Fannie Mae or Freddie Mac guidelines, the lender will require an inspection to ensure the house is habitable — but, honestly, you should have a home inspection completed no matter what.
Even if you’re paying cash and buying the house as-is, an inspection is the only way to really understand what you’re getting into in terms of the home’s condition. Unless your specific loan type requires one, home inspections are generally not mandated by the lender — or anyone else.
They may be discretionary, but inspections are a very important part of the due diligence process, and it’s in your best interest to have one completed by a trusted professional (your agent can offer recommendations!) with every home purchase.
What else should you know about appraisal waivers?
In truth, appraisal waivers are pretty straightforward.
By the time a lender has offered to waive the appraisal, they’ve already determined that moving forward with your mortgage loan is not a significant financial risk due to the value of the home. This may offer peace of mind to you as a buyer — after all, a lender isn’t in business to lose money!
But it is absolutely your right as the purchaser to order an appraisal even if the lender is telling you they won’t require one. Whether it’s for peace of mind, the desire to create a more robust paper trail, or because you know you’re planning to resell the house within two years, the offer of an appraisal waiver does not mean you have to accept.
As always, talking your options through with your real estate agent is a smart move. An experienced agent will understand your wants and needs and be able to help you write a great offer — regardless of an appraisal waiver.
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