In a hot market and/or in situations where home sellers have multiple offers on a home that are very similar in terms, to make offers more attractive to sellers, either they ask or buyers offer to shorten if not outright eliminate some contingencies that are often in sales contracts. In several recent multiple bid situations, the sellers via their realtors countered my buyers' offers, proposing among other things that my buyers remove the appraisal contingency. I explained to them what the implications of waiving the appraisal contingency is and thought it would be beneficial to share this with you.
As part of the loan process on either a new purchase or a refinance, the appraisal report is a professional appraiser's opinion on the value of a home, which is forwarded to the lender, who bases the loan on the appraised value of the home. The lender is looking to see if the appraised value is equal to or above the sales price. When the appraisal comes in at a lower value than the sales price of a home, the lender adjusts the loan amount to match the appraised value.
When a sales contract has an appraisal contingency and the appraisal comes in lower than the price in the sales contract, the buyer has the right to try and negotiate with the seller to see if the seller will lower the sales price to the appraised value or to an otherwise agreed upon sales price.
When a home seller asks the home buyer to not have an appraisal contingency, it means that independent of what the home appraises at, the sales price will stay the same. If the appraisal comes in at less than the agreed upon sales price, then the buyer must come up with extra cash at settlement to bridge the gap between the appraised value and sales price. Without an appraisal contingency, a low appraisal cannot be negotiated. A buyer with a low down payment and/or not extra financial resources may want and/or need the appraisal to come in at the sales price.
On the other hand , a home buyer may offer such a large down payment that he or she may not need the home to appraise, as the loan is not for the full sales price. So he or she may not care what the home appraises for and is confident that the appraisal will come in high enough to cover their loan amount. That being said, some buyers feel better with an appraisal contingency, that they aren't paying above a professional appraiser's opinion on the value of the home.
When refinancing a home one owns, a home owner needs his/her current home to appraise at or above the price the owner purchased the home for.
Financially speaking a lender may approve a buyer for a loan that is at or higher than the sales price of a home, but when the appraised value comes in at lower than the sales price, the loan will be based on the appraised value, independent of the buyer's financial ability.
Call: (301)943-4370
Email: adambashein@gmail.com
www.basheinhomes.info
There are 3 situations where I might tell a buyer to perhaps consider waive the appraisal contingency:
1. If the buyer is purchasing the home with cash.
2. If the buyer intends to get a loan on the house, but has the financial ability to complete the purchase with cash and do a post settlement loan/refinance.
3. If the buyer loves and need the home and/or its location, is planning on living in the home for such a long time that today's appraised value has little impact on the purchase, as the buyer has enough financial resources to complete the purchase just in case the appraisal comes in at a lower value than the contract price.
Whenever a family member, friend or colleague tells you that he or she is thinking of moving, wants to talk about the real estate market or has a real estate question, please tell them that I would love to hear from them. Either I can initiate the contact with them or they call/text/whatsapp me: (301)943-4370 or email me: adambashein@gmail.com - whatever is most comfortable for them.. I always have time for and appreciate your referrals, and am with my clients every step of the home buying/selling process.
Life is good!
Adam
adambashein@gmail.com
www.basheinhomes.info
Direct/Cell: (301)943-4370
Office: (301)921-4500
- ask for Adam
Licensed in MD & DC
RE/MAX Realty Group
information deemed to be accurate but not guaranteed
