Simply put, an appraisal contingency is when everyone agrees, as part of the contract, that if the house doesn’t appraise for the amount in the purchase agreement, the buyers can walk away and get their deposit money back. However, if you have a conventional loan, you can choose not to include it. Purchase contracts give buyers 17 days to release an appraisal contingency in California, but this is the default option if nothing else is selected. With a VA or FHA loan, the appraisal contingency is automatically built-in to the financing contingency. If they are doing a VA or FHA loan you should include an FHA/VA Addendum and that addendum includes an appraisal contingency. The first point of the mortgage contingency clause is to make it clear that all other clauses of the contract are no longer valid if the buyer is unable to obtain a mortgage commitment. Waiving the appraisal contingency can be a risky move in a multiple offer situation. Obviously doing so can expose you to significant financial risk. Subscribe to get our latest listings, real estate advice, and current lifestyle favorites delivered directly to your inbox. Here is an example of what can happen to you and your clients if they DO NOT have this verbiage in the contract: 2. This concerns leads to the next clause that we have seen in … One of the most important contract contingencies you can make to protect your buyer is the “appraisal contingency”. APPRAISAL ADDENDUM TO THE CONTRACT BETWEEN THE UNDERSIGNED PARTIES CONCERNING PROPERTY AT _____ (Street Address and City) 1. 6 months ago. In this particular case over 45 days went by and when the lender could not come through for financing the buyer was going to lose their $50K escrow deposit. Lenders want to make sure that the house is actually worth what you’re paying for it. First, the buyer can … If the appraisal is less than the purchase price, then the buyer can cancel providing the buyer has an appraisal contingency in the purchase contract. If there have not been sales in the defined neighborhood in the past six months or if the sold homes have been smaller or in poor condition, the value might not appraise. In a market where values are going up (which often happens in spring markets), the value may not be as high as the market conditions are dictating. What is an Appraisal Contingency? The contingency specifies a release date on or before which the buyer must notify the seller of any issues with the appraisal. 2. While the purchase price gets pushes higher with multiple offers and escalation clauses the concern becomes appraisal and appraised value. A finance contingencystating that the deal depends on the approval of your loan. Your email address will not be published. Appraisal Contingency: The appraisal contingency is used when the buyer wants to make sure that the property is valued at at least the specified amount. how badly do you want the house? 2. Your buyer is covered with the FHA/VA addendum with an appraisal contingency. Under this contingency, the buyer is relieved from the obligation to buy the property if the buyer obtains an appraisal that falls below the purchase price. Luckily we were able to help the buyer get financing so it closed but this is a good lesson about the importance of working with a local lender who will help you keep track of these deadlines! Be sure to discuss all of these factors with your agent when an appraisal comes in below the contract price. Even if the loan can still be made and it is the loan to value that changed you will not have a satisfied client and they will blame someone for not protecting them from this happening. If Buyer is obtain-ing mortgage financing, the appraisal shall be performed by a Pennsylvania certified appraiser selected by the mortgage lender to … If the value is lower than the sales price, the lender will not make the loan as it is currently structured. With a VA or FHA loan, the appraisal contingency is automatically built-in to the financing contingency. Typically this is worded “Home to appraise at or above sales price”. This is very favorable for the buyer, not so much for the seller. 2) Appraisal comes in lower than the sales price at $380,000. The bank will only loan the amount that the home is appraised for. Some people choose to waive their right to ask the seller for a financing or appraisal contingency in order to beat out their competition. This field is for validation purposes and should be left unchanged. The appraisal contingency says the house must be appraised at the sale price or higher, which will help you secure a mortgage. In that case you should NOT also include an appraisal contingency addendum as it is already covered in the FHA/VA addendum and it is redundant and may even be conflicting. Alternatively, the seller could lower the sales price to the appraised value. No matter which loan program you choose, the lender will require an appraisal as part of the loan in order to approve it . How to Write a House Inspection Contingency. An appraisal contingency stating the home must meet the price you’ve agreed to pay (or higher) when appraised. 3. Read up and learn if removing the appraisal contingency from your offer is the right decision for you. However, with a conventional loan, it is a separate contingency. Here is an example of what can happen to you and your clients if they DO NOT have this verbiage in the contract: 1) Buyer signs contract for $400,000 home; they have a financing contingency to finance $250,000 and put $150,000 down (conventional loan). The appraisal contingency works like this: the bank hires an appraiser to assess the fair market value of the home. if waiving the appraisal or a portion of any appraisal shortfall is the way to get it, then do that. However, in the case of a conventional loan you will want to include the appraisal addendum and this is why. 2. If the value is equal to or above the sales price, the property has “appraised” and the contingency can be removed. Why you Should use an Appraisal Contingency Addendum  Especially for Conventional Loans. Take your pick! As far as the seller is concerned they still get their financing so the fact that the appraisal came in below sales price is irrelevant to them. I am already aware of a buyer that went to a lender and was told they were approved for weeks, however after 30 days there was still no loan approval letter. Releasing the Appraisal Contingency . An inspection contingency requiring that the home pass a home inspection.   The time frame can be extended or shortened by the terms of the contract. She really wants the property. An appraisal contingency can be part of cash purchases or conventional loan. Thus, the buyer and seller have three options. The lender will order an appraiser to go to the property in person, measure, note the amenities,  and put a value on it based on comparable sales in the past six months. Some examples: 1. Your email address will not be published. Sign up here. Tell your real estate agent you want to remove the appraisal contingency. WHAT HAPPENS IF THE LOAN APPROVAL LETTER IS NOT PROVIDED WITHIN 30 DAYS? Without an appraisal contingency, the buyers’ deposit would be at risk if they backed out of the contract because the property didn’t appraise for the purchase price. However, with a conventional loan, it is a separate contingency. //