What kind of mortgage allows you to waive the appraisal? Seems a little negligent for the bank. How can they finance something if they don't know how much it is worth?
No, you waive the appraisal contingency; the bank still does their own appraisal. If the property appraises low, you pay the difference. In this market, we kept some reserve for that eventuality to make the application competitive. The sellers want a buying frenzy and that's what's happening, so many properties don't appraise since those values are usually calculated on historical sales.
The bank will only cover what it is appraised at. You have to split the difference with cash. Some banks might be willing to give you different terms (higher apr, more down) but that is generally how it works in my experience.
Short answer is they let you take the risk on it, not them.