Your lender may have told you that they don’t need an appraisal. This doesn’t mean that you don’t need an appraisal. The mortgage industry has repeatedly attempted to eliminate the requirement for a home appraisal in the lending process. Lenders have introduced programs with little success. Most attempts to remove the appraisal requirement have included use of an automated valuation model (AVM). These models extract mathematical equations to estimate the value of a home. Time and again, AVM’s have failed that mission. They can’t replicate the knowledge and market insight of a home appraiser. Real estate markets have too many imperfections to reliably reduce to a mathematical calculation. They are unable to account for nuances recognized by local markets and known by local appraisers. Further, an AVM lacks sufficient information to reliably estimate a property’s value. They don’t visit the house. They are unaware of factors impacting marketability such as strong pet odors, or walls stained by heavy smokers. In short, any reliable valuation of a home requires the expertise of a local appraiser.

A current program to eliminate use of appraisals in mortgage lending was introduced in 2016 by the Federal National Mortgage Association (FNMA, or commonly referred to as Fannie Mae). The Federal Home Loan Mortgage Corporation (FHLMC, also known as Freddie Mac), quickly followed. These government sponsored entities offer liquidity to the single family market by purchasing and guaranteeing mortgage loans that are made by private lenders. This frees available funds for those lenders to continue making new home loans. Together, they purchase approximately 50% of single family mortgages held in the US. With that large of a market share, Fannie Mae and Freddie Mac exercise significant control over the mortgage lending industry.

The current Fannie Mae program began on a limited basis for mortgage refinance transactions only, and under the name of Property Inspection Waiver (PIW). In 2017, this program was extended to include some purchase transactions. Property inspection waivers are frequently referred to as an appraisal waiver, to avoid confusion from an inspection of the physical condition of a home. The stated purpose of home appraisal waivers is to expedite, and lower the cost of a home loan. Justification is that homes which have been previously appraised for purchase or refinance have an appraisal on file. This provides a report of the property’s value and marketability which can be used for evaluation of a new loan.

Without a home appraisal waiver, FNMA and FHMLC retain the right to require lenders to purchase back a loan when valuation issues arise. When an appraisal waiver has been granted, these government sponsored entities have removed that responsibility from the lender. To be certain, a lender’s offer to complete a mortgage without a home appraisal is solely for their benefit. The lender, along with FNMA’s and FHLMC’s primary concern is their overall loss rate, not the correct sale price or financial wellbeing any specific buyer. Bypassing the appraisal process may be beneficial to the lender, but eliminates a vital safeguard to the buyer … an opinion of value by an independent third party. If you are purchasing a house, this is not acceptable. Without an appraisal at the time of purchase, you may pay too much for the house. Market conditions are quickly changing in the Philadelphia area. Using a previous appraisal does not adequately evaluate its current value.

You may have been granted an appraisal waiver by your lender. This does not mean you can’t get an appraisal independently. Typically the lender orders the appraisal when you purchase a home. With increasing frequency, buyers are contracting their own home appraiser for an objective opinion of value. Cash buyers, who are not subjected to lender loan approval, have also sought an independent opinion of value. In the same way that a buyer makes a purchase offer contingent on an inspection by a professional home inspector, the purchase offer can be made contingent on an appraisal of the home. This doesn’t have to be part of the mortgage process. The purchase of a house is a financial commitment that will impact the buyer for many unseen years. Lenders, and other parties involved in a home purchase transaction, may be quick to forego an appraisal for their benefit. Actual value of the house as evaluated by a professional, local appraiser should remain paramount to the buyer.

Padove Appraisal Service is a full service residential real estate appraisal provider dedicated to helping residential property owners make better informed decisions. As a small, dynamic service oriented company that takes pride in delivering top-notch appraisal services, you can always be sure you’re getting the most accurate home appraisal for your money every time you come to us for your residential appraisal needs. We serve Philadelphia PA, along with Montgomery County, Delaware County and Chester County PA.