Appraisal waivers have really exploded in recent years – especially during the pandemic. But how many are there exactly? Let’s look at actual numbers to walk away with some perspective. These stats are from January 2021 from AEI.
QUICK SUMMARY:
- 47.4% of all Freddie Mac loans had a waiver
- 44.5% of all Fannie Mae loans had a waiver
- Waivers are far more common during refinances
- Only 10-12% of purchases had an appraisal waiver in January
- Non cash-out refinances have the most waivers (67-69%)
- The higher your loan-to-value, the lower your chance of a waiver
- Waivers have seen a dramatic increase during the pandemic
NOTE: This post is not about buyers removing the appraisal contingency. That is in a sense a “waiver”, but the topic here is Fannie Mae and Freddie Mac not requiring an appraisal.
What else do you see?
CLOSING THOUGHTS:
1) Crazy growth: It’s astounding to see nearly half of all loans getting an appraisal waiver, though for now most of these are refinances instead of purchases. Honestly, I would have guessed the purchase numbers were a little higher than reported.
2) Seeing numbers: What real estate professionals experience with appraisal waivers with their clients can really vary. For instance, if you work with FHA borrowers putting very little down, you probably don’t see many waivers, but if you work with conventional buyers putting 30-40% down, you’re going to see more. This is why seeing actual stats is so important.
3) There is place & danger: I’ll be the first to admit there is a place for appraisal waivers in today’s market. That may not sit well with some colleagues, but I don’t have a problem seeing them occur with no cash-out refinances where owners have massive equity. That’s a no-brainer. The danger comes when we start seeing too many appraisal waivers happen in the purchase market especially. The concern is waivers can essentially artificially inflate prices by helping some properties close higher than they should.
4) Big data favoring people with more money: Appraisal waivers are being given to people bringing more money to the table. That’s what the stats show and I get it from a risk standpoint. But with so much conversation about equality in real estate, I guess I find it ironic to see a waiver system implemented that is clearly giving more advantage to people who already have more wealth.
Thanks for being here.
SPEAKING GIGS CLARITY: Lately I’ve been getting asked to give in-person presentations, but I’m not there yet. I’m not vaccinated, so my answer will be NO until that happens. But then I’ll have to see how comfortable I feel too. For now I’m glad to speak by Zoom. Just a heads-up.
Questions: What stands out to you above? What are the positives and negatives of appraisal waivers? I’d love to hear your take.
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Values are being massively hyperinflated. That’s not good. And sales with no appraisal are adding to that. These buyers then do a refi after purchase to take money out to reinvest only to find they paid too much? It’s ugly out there!
Yeah, that’s a hard pill to swallow. It’s easy to blame the appraiser, but the real problem occurred with overpaying.
Nice thoughts Ryan! Honestly, I am not completely against appraisal waivers for refi’s. However, when it comes to purchases, I think they are very dangerous. When I verify my sales with agents, I ask if the borrower’s had an appraisal waiver. If they did, they may not be “well informed” regarding what other competing sales are selling for. Buyers being well informed is a criteria for determining market value. Of course, some are willing to pay more than market value even if the home doesn’t appraiser. At least they were well informed about the decision they made. It will be interesting to see if there are consequences to the market for the use if these for purchases. Only time will tell.
Thanks Jamie. In an era of big data it’s prudent to recognize there is a place for different products. This is true in the valuation space and every other sliver of the real estate profession. But yeah, there is also danger. The role an appraiser plays is an important one as the appraiser gets to be a systems of checks and balances. Thus when we minimize that role for the sake of convenience, it may not end so well. To be fair, we’ll see what the stats say eventually as I think we’ll need to see the data to know for sure. I concur though about asking if there was an appraisal waiver. These days the market is so chaotic that we simply have to understand more fully the terms of the transaction. Frankly, at times we’re going to need to not use certain “comps” because they are outliers rather than indicators of value. On a related note I’d be okay if MLS included an “appraisal waiver” field so we can mine that sort of data on the local level.
I agree whole heartedly! And I also agree that if MLS indicated that an appraisal waiver was used, this would be helpful on many levels.
Great post Ryan. Fine job digging out actual data.
I’ll ask Metrolist again about an appraisal waiver flag. Let me know if you have any other great ideas to share with them.
Thanks Joe. Appreciate the kind words. That would be great. I’d love to see them do that. Please also let them know it would be so helpful to see a definitive number input within the multiple offers field (not zero which is clearly not accurate). Also, the new portion of the multiple offers field that says “decline to state” or something to that effect isn’t helpful from a data standpoint. 🙂
Not good for appraisers, lenders, buyers. This has happened before.
Thanks Truett.
I was under the impression that waivers were granted to low LTV transactions, but conversations with loan officers proved me wrong. Many mortgage finance transactions are facilitated by other than FNMA 1004, 1073 forms. Thanks to unprecedented low rates, many lending appraisers are still very busy with the other half- that actually require a traditional appraisal. When rates rise and this manic market ends, I suggest that my fellow appraisers prepare for a different world. A world where appraisal orders dont magically appear in your inbox at at rate that you cannot service. Diversify my friends. Low rates will fade, waivers will not.
Thanks Ferris. It seems according to stats that higher LTV borrowers don’t get as many waivers, so money down or taking money out or not does play a role. That’s not my lane, so I’ll defer to experts on that of course. I agree with you when it comes to preparing for a different world. Things are changing.
If anyone wonders if criteria exist that will increase/decrease the likelihood of a PIW [property inspection waiver], here’s FAQ from Fannie. We loan originators are constantly trying to figure out what it’ll take to get a PIW. With the backlog of inspections with appraisals sometimes taking weeks to complete, a PIW is more coveted than ever, particularly for refis.
https://singlefamily.fanniemae.com/media/9456/display
Thank you Catherine. I appreciate you sharing the link too. Appraisers have been so backed up. The volume in this market is certainly challenging the efficiency of the system (not just for appraisers of course).
Appreciate your content Ryan! Always such a huge help to me and my clients. Thank you. Kim Renken
Thank you sincerely Kim.
Ryan, to your 4th point, do you see improvement in the AI underpinning waiver decision logic as a remedy to this? I hadn’t really thought of it the way you presented it, but it does have traits of disparate impact when you think about it. Seems like down payment allows for a greater error rate in the valuation model. As the ability to interpret the underlying data improves over time, perhaps a waiver becomes less dependent on down payment.
It’s hard to say Benjamin. On one hand I was hesitant to mention number four, but it’s been on my mind as the market is so chaotic right now and buyers getting waivers definitely have an advantage in the marketplace when submitting offers (and mentioning they are preapproved with a waiver). Ultimately if money down seems to be a pretty big x-factor it just seems like this system gives an edge to buyers who have more. I completely get it from a lender risk standpoint. I’m just thinking out loud about this because I think it’s a good conversation to have.
Great stuff Ryan, thanks. I’m surprised to see the rate of appraisal waivers has increased that much in such a short amount of time, wowza. But I do get it for some of the non-cash out refi’s.
I wonder how much the characteristics of a property (tract vs. non-tract) plays into if there is an appraisal waiver option or not too for the different loan types.
Thanks Gary. I was really excited to see some data on this. I appreciate the transparency and I hope we’ll get more information. I think it would be fascinating to see stats on price range and even borrower demographics including age, race, and gender (hey, we should know these things). I suspect conforming homes will be able to obtain more waivers because an AVM can be more robust. I was actually surprised to see the stats for refinances though. Amazing to watch. Hope you’re well. I referred someone to you this week. Hope it works out.
Yes the additional break down of demographics tied to waivers would be interesting to see. It would also be great if there was some additional details of any planned changes coming down the pike from the GSEs.
Right on, thank you very much Ryan for the referral:)
I think a huge factor in the appraisal waiver is the listing agent “recommending” clients to submit a highest and best offer since money appears to be no object. They are not educating their clients on the possible danger down the road of paying more than what the property is worth.
I get that, but it’s not easy to get into contract either. This is the way the game is being played right now. It is profoundly lopsided and it shouldn’t be this way. But it is.
Wow Ryan, thanks for publishing this PIW data! I can confirm that more than half of my refi’s come with a waiver. And I would imagine if these waivers weren’t so prevalent that appraisal inspection turn times would be terrible, and there would be no way we could close a purchase in 3 weeks if the appraisal report won’t come back for 3-4 weeks (which is common in other states)..
No problem. Yeah, imagine turn-times without these… Yikes. This type of volume has been overwhelming for appraisers and I suspect it’s been very overwhelming for lenders to handle also. Mortgage rates this low have made things very lopsided.
Great stats Ryan. I did not realize they were posting these stats. Very interesting to see and that you pointed out equality. The rich get richer.
I know, I was excited to find this. I see this group has posted a few different times, so I’ll hope to follow along.
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Is it more “wealth” that some have, or that some homebuyers choose to save longer to avoid private mortgage insurance? PMI is expensive. Some choose to be more disciplined about money to avoid the additional monthly cost of PMI. BTW, even 95% LTV files can receive a PIW.
It could certainly be buyers saving. That’s definitely true. How often do you see a PIW with 95% – especially for a purchase? This is not a hill for me to die on by any stretch. Like all datasets there are many layers to consider. But it seems evident there is less of a chance of a waiver happening as the LTV gets higher, so it seems reasonable to say the more money a person has, the more advantage they have within this system. Is that about right? I realize a waiver is not just about money down either. There are other factors here too.
My 34% LTV borrower was required to obtain an appraisal. Annoying!
PIWs for high LTV files aren’t commonplace, but they do occur. That’s why we loan originators scratch our heads about how the algorithm actually works. I doubt it has anything to do with the oppression of the economically disadvantaged.
Thanks. Yeah, I’ve heard quite a few stories like this over the past day. Not every low LTV borrower is getting a waiver. The stats at least show it’s still somewhat of a unicorn experience when purchasing a home (which is probably a healthy thing IMO).
No matter what over time these will be good questions to ask. Maybe there is something here to consider. Maybe there isn’t. We always ought to critique though. On a related note, I find so much of the narrative regarding real estate valuations lately is that we want big data instead of humans to make decisions. Well, what is the outcome of big data? That’s exactly why these stats in particular matter. I admit I’m partly interested in this as my profession in particular has been thrashed in the news media over the past six months.
I was so annoyed that my 34% LTV homeowner had to get an appraisal–in Los Angeles, no less–that I called Fannie Mae. The Fannie rep said that if appraisals of several comparable houses aren’t found in its vast database of stats called “Collateral Underwriter,” you won’t get a PIW. The subject property hadn’t been appraised in over 20 years. The Fannie rep said that probably accounted for the lack of data. I think PIWs should be as transparent as FICO scores, which also used to be shrouded in mystery. IOW, if you didn’t get a PIW, the DU findings should say why.
Thanks. I agree regarding transparency.
I’m an appraiser in Central NY, specializing in rural and oddball/complex properties; it may be several weeks that any 2 properties that I appraiser look alike, unlike in other areas of the country. That being said, my opinion is that real estate agents only want the deal to close fast, at the highest dollar possible, no hiccups (appraisers are hiccups), no problems (again, appraisers are problems), no delays (appraisers cause delays), so that the agent can collect the commission and go play golf or whatever.
Around here the Title companies are backed up 3-4 weeks, attorneys are also backed up and so are we, the appraisers. Why does an AIW make sense if other parts of the deal will be delayed? I can see it makes sense on a very low LTV home, but on purchases? It looks like 2006-2008 all over again, I’ll just stick around for the next wave of foreclosures. Not all agents are like what I described, but a lot of them are.
FannieMae has been trying to get rid of appraisers for several years now, no matter what they say. The Appraisal Institute? Absolutely powerless to do anything except meet and come up with a new USPAP that only has to be followed by us appraisers. Agents, lenders, AMC’s all do not give one rip about USPAP and all the other regulations we have to follow to the letter. I have been appraising for 16 years and hope to continue for many more, but I can see that “lending” appraising will soon be a thing of the past; diversify is the key for the future.
Thank you Joseph. Now that you have an approved comment you can pitch in your two cents any time if you wish. I appreciate your take. There are many moving parts here. I think big data is going to force us appraisers to highlight the most important thing we bring to the table – analysis and interpretation of data. I agree on diversification too. I’ve not done an appraisal for lending purposes for 4-5 years or so.
Very informative, thank you. While I am certainly not against appraisal waivers, I would argue that this point in the economic cycle is one where less appraisal waivers should occur. I think ideally we’d want to have seen a rise in waivers during stable market times when home values are more predictable and a decline in waivers when the market is moving (either up or down) or there is economic uncertainty on the macro level. Seeing as many markets nationwide are experiencing significant price appreciation and we have a fair degree of macro uncertainty due to Covid-19, it seems a bit concerning that the trend is opposite that.
Thank you Tom. Yeah, I’m concerned also about timing.
Good point on #4. It is ironic how the waiver benefits those with money. I was listening to a podcast this week where they said that that it’s quite possible that with more waivers appraisal costs could go up to compensate for less work. So if this happens not only do higher-income individuals benefit from saving money on appraisal costs but those who cannot get the waiver, namely those with lower income, may have to pay more for appraisals. Not sure how things will play out but it will be interesting to watch.
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The lower the LTV, the more likely a PIW will be granted by the Collateral Underwriter algorithm, so it’s noteworthy (not ironic) that the PIW benefits those WHO SAVE MORE. Many not-wealthy people forego buying a house until (a) they’ve saved enough money for a 20% down payment, so as to (b) avoid private mortgage insurance. Relax…no one’s a victim of the system–unless you want them to be.
I hear you Catherine. But let’s be real too that the system doesn’t perfectly benefit everyone. I think of $20,000 to $30,000 homes in Detroit and Flint right now where nobody including lower-income people can get loans because it’s not cost effective for lenders to do these loans. This is a perfect example how the system is not offering opportunity for home ownership and building wealth because the numbers don’t work. That is an entirely different thing of course from what we are talking about, but it’s a good example of the system not working for everyone. Of course if we wanted to take a deep dive on the system being uneven over time we could start talking about redlining…
I agree with you that the responsibility of home ownership is obviously not entirely on lenders because clearly borrowers have to save and plan. Bottom line. But that doesn’t mean we cannot critique the system either as we look at stats. That’s exactly what we should be doing because otherwise we won’t find deficiencies and then change where needed. In the case of appraisal waivers this is definitely something to watch and we may have some really interesting stats over time to analyze.
One of the takeaways for me here is big data doesn’t solve all our problems. Thus this conversation is critical – especially as we talk about inequality and opportunity.
Know what I’m saying?
I think of $20,000 to $30,000 homes in Detroit and Flint right now where nobody including lower-income people can get loans because it’s not cost-effective for lenders to do these loans.
I believe Bank of America offers loans < $50,000.
Definitely something to watch. Thank you Tom.
As a San Diego County appraiser, I’ve cut purchases by more than 2 million dollars in the past 30 days (one was cut by $400,000)! The only true way to find that 1, 2, or 3 in 10 problem property, is to inspect 10 out of 10. Excuse me while I work on this one bedroom 1,200 sf home that was purchased as a 2,400 sf property where the basement was falsely included as GLA (appraisal waiver). The government and powers that be think these bad transactions are isolated incidents, however with A la mode peer sharing, tell me what the adverse effect is when that prior sale was used 18 other times by other appraisers?
Seek the truth.
Thanks Bill. And that’s a sobering example. This is definitely a huge potential problem.
It’s my experience with my buyers and sellers that they “The Market” don’t trust the appraisers to get it right. :/
Fair enough. Thanks Bev. I wonder who they do trust? Realtors? Zillow?
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Oh, boy…you said a mouthful. On the half dozen loan originator Facebook discussion forums I frequent, we discuss this phenomenon ALL THE TIME. These LOs discuss various strategies to “correct” the appraiser’s conclusions. Why? Because they’re not strong enough to push back against a selling agent who needs a paycheck so badly they don’t provide informed guidance to their hapless first-time homebuyer clients. Lately, the gripe is about appraisers who charge “outrageous” rush fees and even then don’t deliver the inspection report on time–as if everyone will turn to salt if the transaction doesn’t close on time. What thankless jobs y’all have.
If they are not getting it waived, they are coming in with the cash to pay the gap, which in either way will inflate prices.
The struggle is real. If too many of these sales happen it can definitely affect the market. I wish I had exact stats on this dynamic.
From a loan originator’s POV, here’s why we pray (on our knees) for a PIW. This is this morning’s thread-starting post on my broker discussion forum:
“Finally figured it out… These appraisers are making so much in crypto they don’t care about turn times right now.”
Turn times are horrendous, resulting in blown rate locks, contract per diems, wrecked LO-realtor relationships, etc. Appraisal rush fees mean nothing. On the last order I submitted to an AMC, it took a solid week for an appraiser to accept the assignment. Hardly a week goes by where there’s not a thread on some forum that discusses what’s occurring out there re PIWs. “How do I get one?” “Help me get a PIW on this file!” “Oh, no! Lost my PIW!” The laments go on and on.
The AMC system is broken. (Off-topic, I know.)
Thanks. Though it’s not just the AMC system. The reports appraisers are being asked to compile today involve FAR more than they used to. Moreover, scrutiny is so much more intense too. So frankly the system is not helping with turn-times. We complain about efficiency and speed, but in a sense the system is also helping to create these results (in addition to the broken AMC model).
Oh, and such a great comment regarding crypto… Haha. I do have some dogecoin, but that’s not making me slow (though I have checked my account quite a few times today). 🙂
True dat. I sometimes try to explain all this to my fellow LOs but their hair’s on fire due to blown locks–I have two such files–and wrecked LO-real estate agent relationships because the RE agents don’t have a clue, either. I constantly encourage folks to bookmark this site so they can educate themselves to the enormous challenges that appraisers face.
Thanks Catherine. Very cool. And please pitch in your two cents any time (not that you weren’t going to). I really appreciate conversations like this and a different perspective.
I referenced your site just a minute ago on a post that asked how appraisers treat “hoarder” homes. You cover it all, Ryan!
Very cool. Thanks. 🙂