The Appraisal Waiver, The Good, The Bad & The Ugly
What is an appraisal waiver?
Value acceptance (formerly known as, appraisal waiver) uses data and technology to accept the lender-provided value, allowing lenders to deliver loans for certain eligible transactions to Fannie Mae without an appraisal. Value acceptance offers are issued through Desktop Underwriter® (DU®) using Fannie Mae’s database of more than 61 million appraisal reports in combination with proprietary analytics from Collateral Underwriter® (CU®) to determine the minimum level of required collateral due diligence.
An appraisal waiver allows qualified home buyers to skip the in-person appraisal process when buying a home. Instead, lenders use data generated by an automated underwriting system to determine the value of the home based on the information it has collected from other recent home sales in the area.
In UCAP’s opinion and several others, this can be extremely damaging and have a long-term impact on people of color, particularly those in rural areas. Systemic racism in the housing market, has been going on for many years and is a major contributor to the wealth gap between people of color and white people. It has been found to reduce African-Americans’ and Hispanics’ access to the most lucrative mortgages and the lowest mortgage rates. Therefore, by providing an appraisal waiver with as low as a 3% down payment to people purchasing homes in high-needs rural areas can further deepen the wealth gap, while disproportionately benefiting white Americans.
Appraisal waivers, also come with one big risk to buyers. Without an in-person appraisal, buyers might overpay on a home. An in-person appraiser can spot problems with a home that an automated appraisal can not.
By offering the “Value Acceptance” process to the buyers, Fannie Mae is basically placing the responsibility of value decisions squarely on the realtors shoulders. What if the realtor accidently missed something important that affects the market value, or what if the market shifts. What if the homeowner refinances shortly after moving in and finds out that the house is not worth what they paid for it. “Value Acceptance”.
It might be tempting to skip the in-person appraisal when you’re buying a home, especially when you’re in dollar-saving mode. However, an appraisal is designed to protect buyers from overpaying for a home, and identifying any issue that are readily obvious. Because of this, it makes sense for buyers to skip that in-person appraisal on one of the "Biggest Decision of Your Life".