Bank/Lender is waiving appraisal? Good or bad?

[catccc]

We are under contract to buy a house for $513K,  It was last sold in 2012 (aka, the bottom of the market) for $410K.  If we assume 2.5% inflation annually since 2012, one would expect this house to sell at $512K, so I don't think we are grossly overpaying for this place.

We did an appraisal waiver in our offer and took the risk that we would cover any gap between the appraisal and purchase price of this house.  But my realtor said today that the bank/lender gave us an appraisal waiver.  She was excited and happy about it.  On one hand, I'm glad I don't need to pay $525 for an appraisal, and glad our cash required for closing is less.  But I feel like I want to know what the appraised value is.  I'm also just generally nervous about this entire process, this is our first real estate purchase.  Is there any circumstance under which the bank waiving appraisal is bad?

[Villanelle]

You can still have an appraisal done if you want to.

But what would be actionable about it?  Is there some answer that would make you back out of the contract (under whatever terms your contract allows that)?  Have you looked at comps?  I don't think that just guessing at 2.5% per year is a very good way to determine if a home price is fair.  Comps will be much more valuable. 

[YttriumNitrate]

Presumably you've been looking at houses in that area, in your desired configuration (e.g., 3/2), in that price range, for at least a few months and should know what they are selling for. If you've done your homework, an appraisal won't tell you much that you don't already know.

[jeromedawg]

It feels like it's risky but if you have a loan contingency you can still technically back out by failing to perform if something else goes sideways. The PIW/appraisal waiver helps expedite the timeline and saves money (don't need to pay or schedule for the appraiser to come out). I think waiving the appraisal might be bad for the seller if the appraisal comes in higher than their agreed upon sales price. If the appraisal comes out lower for the buyer that might be good IF the seller is willing to negotiate the price down but that's rarely ever the case in today's market. It's more just another leg to stand on as far as backing out is concerned w/ the loan contingency. Other that, it seems like it's fine if it's waived especially if you're set on the place and there's nothing majorly wrong with it.

[Telecaster]

But I feel like I want to know what the appraised value is.  I'm also just generally nervous about this entire process, this is our first real estate purchase.  Is there any circumstance under which the bank waiving appraisal is bad?

I can't think of one.  As the buyer, you've been looking at houses, right?  So you know pretty much what a fair price is.  Both agents should be pretty well dialed in too. 

Banks have tools like Zillow (not Zillow specifically, but like Zillow) that they use to estimate prices.  Since they gave you the thumbs up, they think the price is fair as well.   

The downside of getting an appraisal, besides the cost,  is if the appraisal comes back too high the bank won't finance it and the deal falls through.  Which is a big pain for everyone. 

[sonofsven]

It's a good thing, it's unnecessary. I doubt you could use a lower appraisal to force down the seller's price in this seller's market.
Appraisals seem to be suspiciously related to the agreed upon price in my experience. Almost like the appraisal is just following the market...

[YttriumNitrate]

The downside of getting an appraisal, besides the cost,  is if the appraisal comes back too high the bank won't finance it and the deal falls through.  Which is a big pain for everyone.

Why would a bank not finance a loan with a lower loan-to-value ratio? It seems like there would be less risk for them since there is more equity for them to go after if the loan defaults.

[catccc]

It's a good thing, it's unnecessary. I doubt you could use a lower appraisal to force down the seller's price in this seller's market.
Appraisals seem to be suspiciously related to the agreed upon price in my experience. Almost like the appraisal is just following the market...

This is what I think for the most part!  It seems like such a racket...
We waived the appraisal contingency in our offer, anyway, so we couldn't renegotiate if it came back lower, we agreed to pay the difference at closing.  I guess I should just be glad we don't have to.  After such a crazy year, I'm skeptical of everything.

[catccc]

The downside of getting an appraisal, besides the cost,  is if the appraisal comes back too high the bank won't finance it and the deal falls through.  Which is a big pain for everyone.

Why would a bank not finance a loan with a lower loan-to-value ratio? It seems like there would be less risk for them since there is more equity for them to go after if the loan defaults.

I'm going to assume that was a mistake... the author probably meant if it comes back too low the bank won't finance.

[catccc]

You can still have an appraisal done if you want to.

But what would be actionable about it?  Is there some answer that would make you back out of the contract (under whatever terms your contract allows that)?  Have you looked at comps?  I don't think that just guessing at 2.5% per year is a very good way to determine if a home price is fair.  Comps will be much more valuable.

I guess I'll save my money, there will be no action.  You are right, it isn't a great way, but I'm just trying to rationalize the price we paid.  I probably can stop worrying about it if the bank thinks it is okay.

[uniwelder]

@catccc   What percent down payment you have on the house?  I'm curious because I've never heard of a bank waiving the appraisal for a mortgage, but its great for you.  As a bank, I would think they would only do it for something like 30-50% down.

[catccc]

@catccc   What percent down payment you have on the house?  I'm curious because I've never heard of a bank waiving the appraisal for a mortgage, but its great for you.  As a bank, I would think they would only do it for something like 30-50% down.

Thanks.  I need all the positive feedback I can get. Despite everything going our way, I have a lot of anxiety over this decision.  It's probably more related to other life stressors than the home purchase, really. 

We are putting 20% down to avoid PMI.  We could have put more down, but at 2.75% and looming inflation, we figure a big fixed loan isn't a bad idea.  Unless we have a need to reduce our FIRE drawdown in the future, I guess we'll be in "don't pay off your mortgage" club.

[mckaylabaloney]

@catccc   What percent down payment you have on the house?  I'm curious because I've never heard of a bank waiving the appraisal for a mortgage, but its great for you.  As a bank, I would think they would only do it for something like 30-50% down.

I just refinanced and my lender (Better Mortgage) waived the appraisal and just used the estimate I put on my application. They actually told me it was totally automated and it was a federal issue, like it was Fannie Mae who made the decision or something, through an automated data system? I forget. Anyway, my best guess was that they accepted it because my estimate was around the same value that online services (Zillow, etc.) were estimating at the time, but I don't know what kind of data goes into it. For reference, my LTV (at my estimated value) is ~81%.

Thanks.  I need all the positive feedback I can get. Despite everything going our way, I have a lot of anxiety over this decision.  It's probably more related to other life stressors than the home purchase, really. 

I found buying my house (my first, as well) to be incredibly stressful, even though everything went smoothly and quickly. It's just a big deal! And the process is pretty opaque, or it felt that way to me, and it seems like there are a lot of ways things can go wrong. It's totally normal to feel anxious about this, but it will be over soon!

[catccc]

I found buying my house (my first, as well) to be incredibly stressful, even though everything went smoothly and quickly. It's just a big deal! And the process is pretty opaque, or it felt that way to me, and it seems like there are a lot of ways things can go wrong. It's totally normal to feel anxious about this, but it will be over soon!

Thank you.  It really helps to hear this kind of stuff because I'm freaking out over it.  I know people buy and sell houses all the time.  But I'm 41 and a lifelong renter, so it's kinda like an old dog/new tricks(?) feeling over here.  Life is already complicated enough, and I'm trading the simplicity of renting for what feels like a big unknown.

[mckaylabaloney]

I found buying my house (my first, as well) to be incredibly stressful, even though everything went smoothly and quickly. It's just a big deal! And the process is pretty opaque, or it felt that way to me, and it seems like there are a lot of ways things can go wrong. It's totally normal to feel anxious about this, but it will be over soon!

Thank you.  It really helps to hear this kind of stuff because I'm freaking out over it.  I know people buy and sell houses all the time.  But I'm 41 and a lifelong renter, so it's kinda like an old dog/new tricks(?) feeling over here.  Life is already complicated enough, and I'm trading the simplicity of renting for what feels like a big unknown.

I know mileage varies a ton with respect to whether owning is worth it, but it has been so great for me. I've actually been shocked at how much it's improved my quality of life. Some of it was of course about location, but I also have really loved knowing that this is mine, and being able to customize it to meet my needs exactly, and so forth. Hoping the same for you!

[iluvzbeach]

We’ve purchased two homes this year and in both cases the lender waived the appraisal requirement. On one we put about 33% down and on the other 20%. We hadn’t waived the appraisal contingency in either offer but were happy to forego an appraisal when the lender said they didn’t need one. We were comfortable with the prices we offered and felt the risk was minimal as we plan to own both places for the foreseeable future.

[Fishindude]

If you like the place and are willing to pay the asking price, and your lender doesn't care, what more will an appraisal do for you?

[uniwelder]

@catccc   What percent down payment you have on the house?  I'm curious because I've never heard of a bank waiving the appraisal for a mortgage, but its great for you.  As a bank, I would think they would only do it for something like 30-50% down.

I just refinanced and my lender (Better Mortgage) waived the appraisal and just used the estimate I put on my application.

For a refinance, I can understand.  On my last two refinances, a formal appraisal wasn't required either.

We’ve purchased two homes this year and in both cases the lender waived the appraisal requirement. On one we put about 33% down and on the other 20%. We hadn’t waived the appraisal contingency in either offer but were happy to forego an appraisal when the lender said they didn’t need one. We were comfortable with the prices we offered and felt the risk was minimal as we plan to own both places for the foreseeable future.

Huh, another data point (or two) towards no appraisal required for purchase.  I'm really surprised.

[Dicey]

Good.

[ender]

We had an appraisal waived last year.

It was nice. Saved $500 or so.