Why Are Sellers Asking Buyers to Waive Their Appraisals?
In today’s market, sellers are looking for buyers who present strong offers that are more likely to go through without delays or complications.
One standard that has become increasingly common is for buyers to waive their appraisal contingency. While this can make an offer more attractive to sellers, it can also carry significant risks for buyers.
Understanding the Appeal of Waiving an Appraisal
When a buyer waives their appraisal, they are agreeing to proceed with the purchase at the established price, even if the property appraises for less.
Waiving an appraisal is particularly prevalent in competitive real estate markets where multiple buyers are vying for the same property. Waiving the appraisal can make the offer stand out to sellers by eliminating the risk of a delayed closing due to a low appraisal. Sellers know that the buyer is committed to paying the agreed price, no matter what the appraisal might come in at.
While this can be appealing in theory, it introduces a significant risk for the buyer. If the home appraises for less than the purchase price, the buyer may be responsible for adding funds to their down payment to meet the minimum loan-to-value requirements set forth by the lender.
In some cases, the buyer may have an option to pay for mortgage insurance as part of their monthly payment in lieu of putting down additional money, but this is only an option if the home appraises for less than the purchase price and the buyer has less than 20% equity as a result of the lower appraised value.
The Risks of Waiving an Appraisal
Financial Implications: If the home appraises for less than the purchase price, the buyer may need to pay the difference out of pocket.
Market Volatility: In fast-moving markets, home values can fluctuate quickly. A buyer might agree to a purchase price based on competition, but the market conditions may change, and the home might not appraise as expected.
Lack of Protection: Without an appraisal, buyers lose an important safeguard that ensures they are not overpaying for a property. The appraisal process provides an objective, third-party assessment of the home's value, helping to avoid overpaying in a rapidly appreciating market.
Waive Your Appraisal Without the Risk: Our Value Assurance Program
Our Value Assurance Program provides buyers with an added layer of protection.
If a home doesn’t appraise to the projected value, we will still honor the amount determined by an Automated Valuation Model (AVM), which is used to provide an estimated market value of the property. This means that buyers who utilize our program are not left to cover the gap between the appraisal and the purchase price, mitigating the risk of overpaying.
When used in tandem with our underwriting approval program, Home Buyer’s Edge, borrowers can bid with full confidence in both their financial standing and the accuracy of their appraisal findings.
How to Qualify for Our Value Assurance Program
To benefit from the Value Assurance Program, buyers must meet certain qualifications. These include:
- Loan-to-value and FICO qualifications: Borrowers must meet our required thresholds for loan-to-value (LTV) and credit score (FICO).
- Property type: The program applies only to single-family homes and condos.
- Conventional underwriting: The subject property must meet conventional underwriting requirements.
- MLS listing: The property must be listed in the MLS (Multiple Listing Service).
- Loan types: The program is available for conforming and high balance loans.
- Appraisal: Although the Value Assurance Program provides protection against appraisal risk, an appraisal is still required.
- PMI (Private Mortgage Insurance): Depending on the buyer's individual circumstances, PMI may still apply.
Closing Thoughts: Review the Property Details and Consult With Your Real Estate Agent and Mortgage Advisor Today!
Before deciding to waive an appraisal, we recommend that homebuyers work closely with their real estate agent and mortgage advisor to carefully consider the market conditions, property details, and the potential risks involved.
By offering the Value Assurance Program, we're providing homebuyers with an innovative tool to feel confident in today’s competitive market—without the fear of being financially exposed.
Are you ready to learn more about how our Value Assurance Program can help protect your home purchase? Give us a call or visit us online today!