While Property Inspection Waivers (PIWs) are rare in the Pennsylvania, and will likely remain so for some time to come, however it is vital to stay informed about this “product” in the coming years. PIW’s advertise that they will speed up the closing process, however, at what cost? In many cases the buyer is still charged for a full appraisal, however the home they are potentially purchasing is not appraised by a real estate professional. Instead the property is “valued” using an algorithm used by Fannie Mae or Freddie Mac. So, while faster, there is often no financial savings to the consumer. Further, the borrower is then placed at risk of purchasing an overpriced home.
PIW’s use data available from the local area (which we have witnessed over the past 3 years is often wildly inaccurate) to choose similar properties (again, we have seen these are often horrible comparables), based on public records (which are often suspect) to attempt to place a value on the home based on multiple regression (which according to the work of mathematician Dr. Jason Osbourne of NCSU is not reliable except in the most cookie cutter of home plans).
So…
Bad neighborhood definitions
Bad comparable selections
Bad public records of those bad comparables
Bad analysis based on all that information… WHAT COULD GO WRONG!!!
“This is essentially an arms race between Freddie Mac and Fannie Mae on who can do the least amount of care. Competition between Freddie Mac and Fannie Mae should not result in a race to the bottom on due diligence, especially while the agencies remain in conservatorship. ”
Who will borrower’s be suing for giving misleading valuations? An algorithm? The government sponsored entities of FNMA Freddie? No, their first and easiest target will be the individual charged with representing their interest… their Real Estate Agent/Broker.
Some words of advice to brokers and agents:
Protect your buyers - you have an ethical charge to represent your buyer’s interest, and in no way are their interests protected by a Property Inspection Waiver. Would you urge your buyer to “waive” a home inspection because the rest of the homes in the neighborhood look ok? Would you “waive” a septic inspection because the neighbor’s septic works fine? NO.
Protect yourself - Fannie Mae/Freddie Mac has billions of dollars to protect itself with, making it a hard target. Protect yourself by always recommending that the borrower receive a professional home valuation which can only be provided by an appraiser.
