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.
- 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?
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.