When purchasing or refinancing a home, lenders typically order a full appraisal to ensure the property is worth at least the loan amount. A home appraisal involves a licensed third party visiting the property, examining comparable sales (or “prices”), and creating a detailed report about the home and its current value.
An appraisal waiver is when a lender determines that an in-person appraisal is not necessary because the automated tool has already provided enough data to support the loan amount. These decisions are derived from an automated underwriting system that analyzes past appraisals, public records, and local sales data.
Whether you’re buying a home in Phoenix, Arizona, or a condo in New York City, we’ll break down how the appraisal exemption works, who qualifies, why lenders use it, and when to say yes or no.
In this article:
Evaluation exemption mechanism
Persons eligible for evaluation exemption
Reasons why financial institutions waive appraisals
Advantages of using evaluation exemption
Risks and limitations
Assessment Waiver and Assessment Contingency
How to get an evaluation exemption
conclusion
FAQ
Evaluation exemption mechanism
These days, lenders rely heavily on automated underwriting systems (AUS) to aid in risk assessment. When a lender submits a loan application, AUS reviews:
Extensive national database of past evaluations. Public tax records. MLS sales data. Property characteristics (number of beds/baths, square footage, age, etc.). Borrower and loan-level risk factors.
If the system has enough reliable information about the property and the overall risk is low, it may return results that prompt the lender to abandon the full appraisal process.
1. Automated underwriting system estimates your value
These automated systems estimate value by analyzing:
Similar recent sales. Past ratings stored in the ratings database. Local price trends. Public and Third Party Property Data.
If the purchase price (or stated price in the case of refinancing) matches the expected range and returns a positive value and risk profile, an exemption from the appraisal may be granted.
2. Property data collectors may still visit you.
Some exemption types still require real estate data collection, but this is essentially a walkthrough that is collected by a third-party professional.
Photos of the interior and exterior. Dimensions and floor plan. Basic conditions and characteristics.
This is not a complete appraisal and there is no appraiser to determine the value, so there is usually no cost to the buyer. Instead, the data is used to supplement automated systems, allowing traditional assessments to be skipped.
3. How does the assessment exemption replace traditional assessment?
If you accept the evaluation exemption:
No in-person evaluation reports will be ordered. Lenders use automated valuation data to determine collateral. Avoid potential schedule delays and valuation fees.
Essentially, if a valuation exemption is proposed, as long as all other risk factors are checked, the system has enough confidence in the value that there is no need for a human to be present at the property for verification.
Persons eligible for evaluation exemption
Applications for evaluation exemptions cannot be requested. The automated underwriting system determines eligibility based on your entire loan file and property data.
Evaluation exemptions are typically determined as follows:
1. Loan types and property characteristics
Exemptions are most common in the following cases:
A standard single-family home or condominium. Primary residence and second home (not many investment properties). Properties in areas with a lot of recent sales data.
Unique, rural, or highly customized homes are less likely to qualify for the exemption because the model has fewer reliable and comparable data points.
2. Loan-to-value (LTV) ratio
Forgiveness is more common when the loan is considered low risk, such as:
Low LTV (large down payment or more equity when refinancing). There are no cash-outs or limited cash-out refinances. Small or medium loan amount compared to regional standards.
Typically, the more equity or down payment you have, the more comfortable a lender will be with waiving an appraisal.
3. Borrower profile and payment history
While real estate is the driving force behind forgiveness decisions, lenders also consider:
Credit score and overall credit profile. Manageable debt-to-income ratio (DTI). income. If refinancing, your mortgage payment history must be good.
4. Availability of market data
Automated systems require sufficient data and sales activity to be confident in estimating value. You are more likely to be offered an evaluation exemption if:
There are many similar sales recently. The property (or nearby homes) has a recent appraised value recorded in the investor’s database. Homes are located in data-rich areas, such as subdivisions and condo communities, resulting in clear and predictable price trends.
If you don’t have enough data, you may be a highly qualified borrower but need to go through the traditional evaluation process.
Reasons why financial institutions waive appraisals
From a lender and investor perspective, appraisal exemptions are not just about convenience, but efficiency and risk management.
1. Reliable existing data
If the automated model shows that the value is supported by recent sales and records, the lender will waive the appraisal. The new appraisal likely won’t add much new information, and the data shows the property falls within an acceptable level of risk.
2. Closes faster and smoother
Skipping the appraisal can remove days or even weeks from your closing timeline, reducing the risk of schedule delays, derailed closings, or last-minute loan modifications or negotiations in the event of a poor appraisal.
3. Reduce costs
Borrowers save on regular appraisal fees, and lenders eliminate the extra administrative tasks associated with ordering, reviewing, and verifying a complete appraisal report.
Advantages of using evaluation exemption
If your lender offers an appraisal waiver, here are the key benefits to consider before accepting the offer:
1. Lower closing costs
You can save on appraisal fees, which can range from $400 to $900 or more, depending on location and season.
2. Faster processing
Closing timelines are greatly reduced by eliminating interaction with appraisers.
3. Protection from assessment gap issues
If you don’t request a valuation, your offer will be more competitive because you won’t have the following risks:
A low valuation that triggers negotiations. Bring in additional cash by closing. The deal fell apart due to a dispute over values.
Risks and limitations of using assessment exemptions
There are trade-offs with the assessment exemption. It’s worth understanding what is at risk before accepting.
1. Automated valuations can misread the market
Automation models are powerful, but they are not perfect. They may miss the following:
Unique features (views, upgrades, layouts, etc.) that add real value. Any flaws in the location or property that may reduce its value (busy roads, odd floor plans, etc.). Very recent price movements in a fast-moving local market.
2. The condition of the property has not been adequately assessed.
Exemptions and property data collection are intended to support home values and are not a substitute for a home inspection. Even when a real estate data collector visits, the following things happen:
They are not acting as home inspectors. No reports of structural, mechanical, or safety issues were provided.
Relying solely on a home value appraisal and skipping a buyer’s home inspection can cause you to miss expensive problems with the roof, foundation, electrical, or other parts of the home.
3. Future resale or refinancing challenges
If your lender’s automated appraisal is too high and you accept it:
You may start with less real capital than you think. A prospective buyer’s lender may request a lower (market risk) full appraisal. If your home’s appraised value is less than your current loan balance, your ability to refinance in the future may be limited. If forgiveness is provided on a future refinance, you may not be able to receive upgrades or improvements that would contribute to capital appreciation.
Assessment Waiver and Assessment Contingency
One important thing to know is that lender appraisal waivers and purchase contract appraisal contingencies are not the same thing. When a lender waives an appraisal, it is different from a buyer waiving the appraisal contingency.
Lender appraisal exemption
Determine whether your loan requires an appraisal. Based on lender risk tolerance, available data, and investor guidelines. It has nothing to do with the buyer’s contract protection.
Evaluation contingency
A clause in the buyer’s sales contract. If the appraised value is lower, it gives the buyer the right to renegotiate or walk out. We protect you, the buyer.
Note: Even if you waive the lender’s appraisal, you can still keep the appraisal reserve for your protection. Or waive evaluation conditions to make your offer more competitive.
How to get an evaluation exemption
Step 1: Apply to a financial institution
Provide income documentation, property details, and approvals so the lender can issue the loan through an automated underwriting system.
Step 2: Ask if you were provided with an evaluation waiver
If the results of the AUS investigation result in an appraisal exemption, your loan officer will immediately review the results and notify you if there are any conditions, such as collecting real estate data.
Step 3: Check the pros and cons with your lender and agent.
Before accepting an appraisal waiver, check your comfort level with the home’s price and condition, long-term plans, market competition, available down payments, and appraisal contingencies with your real estate agent.
Step 4: Accept or reject the waiver
Acceptance means the lender can proceed without a traditional appraisal and make an offer up to the approved amount. A decline means the lender will order a full in-person appraisal and the calculated value must be greater than or equal to the loan amount.
conclusion
If the data shows the home’s value may be higher than the purchase price, the lender may offer an appraisal waiver. In this case, there is little risk to the lender, and an in-person appraisal is not required to confirm the home’s value. Ultimately, the appraisal is used to protect the lender and the loan amount.
In a competitive market where a buyer outbids the asking price, an appraisal waiver offer can actually protect the buyer from a lower appraisal that may require additional cash at closing to make up the gap. However, if you’re open to walking away or renegotiating if the value is lower, talk to your real estate agent about getting a traditional appraisal instead.
FAQ: Evaluation Waiver
How risky is it to abandon an assessment?
If the lender’s data shows that the home is clearly worth more than you’re paying, it’s usually a low risk to waive the appraisal. The biggest risk is that you may end up overpaying without realizing it because you will miss the opportunity to have a face-to-face appraisal to confirm the value. It’s also unlikely that problems will be discovered during the appraisal, but in any case, buyers should rely on a home inspection rather than an appraisal to understand the complete condition of the home. If you are confident in your purchase, price, and inspection, the risk is much less.
Who is eligible for the assessment exemption?
Appraisal exemptions are more likely to be provided to borrowers and properties that are considered to be a lower risk to the lender. If you have a large number of comparable sales, the loan has a low LTV, and the buyer has strong credit and finances, you are more likely to qualify for appraisal forgiveness.
What is the 3-day evaluation exemption rule?
Federal disclosure requires lenders to provide you with a copy of the appraisal at least three days before closing. If you don’t want to take advantage of the available appraisal waivers, but opt for a full appraisal anyway, your lender will need time to receive that report from you before signing the final documents. If you accept the appraisal waiver, the three-day waiting period does not apply because you are telling the lender that it is okay to proceed without an in-person appraisal.
