What are the best ways to avoid appraisal contingencies?

1 What is an appraisal contingency?

An appraisal contingency is a clause in the purchase contract that allows the buyer to back out of the deal or renegotiate the price if the appraised value of the home is lower than the agreed-upon price. The buyer may also have to pay more out of pocket or secure additional financing to cover the difference. Appraisal contingencies are designed to protect the buyer from overpaying for a home and the lender from lending more than the home is worth.

2 Why are appraisal contingencies problematic?

Appraisal contingencies can create uncertainty and stress for both buyers and sellers, especially in a competitive or volatile market. If the appraisal comes in lower than expected, the buyer may lose their earnest money deposit, the seller may lose their potential profit, and the deal may fall apart. Appraisal contingencies can also prolong the closing process, as the buyer and seller may have to negotiate a new price, request a second appraisal, or find another solution.

3 How to avoid appraisal contingencies?

One way to avoid appraisal contingencies is to waive them altogether. This means that the buyer agrees to pay the agreed-upon price regardless of the appraised value, and risks losing their deposit if they can't secure financing. This can be a risky move for the buyer, but it can also make their offer more attractive to the seller, especially in a seller's market. Another way to avoid appraisal contingencies is to make a large down payment or pay cash for the home, which reduces the lender's risk and the need for an appraisal.

4 How to deal with appraisal contingencies?

If you can't or don't want to avoid appraisal contingencies, there are still some ways to manage them effectively. Doing your homework before making an offer, such as researching comparable sales and market trends, can help you make a realistic offer that matches the appraised value. It's also beneficial to work with a reputable appraiser who has experience and knowledge of the local market and property type. If you disagree with the appraisal, you can request a review or a second opinion from another appraiser, or provide additional evidence or information to support your case. If the appraisal comes in lower than the contract price, you can try to negotiate a new price that both parties can agree on, which may involve some compromise and flexibility from both sides, but could save the deal from falling through.

5 How to prepare for closing?

Once the appraisal contingencies have been resolved, you're one step closer to closing the deal. However, there may still be other closing contingencies to deal with, such as financing, inspection, title, or insurance. To prepare for closing, it is important to communicate with your agent, lender, and attorney. You should also review the closing disclosure, which is a document that summarizes the final terms and costs of your loan. A final walk-through is also recommended as it is your last chance to inspect the property and make sure everything is in order and as agreed upon. On the day of closing, you'll need to bring your identification, checkbook, and keys in order to pay any remaining fees or costs and receive your keys and title. Congratulations on becoming a homeowner!