When utilizing a loan to purchase property, homebuyers often feel the urge to waive their appraisal contingency upfront in an effort to better stand out to sellers in today’s competitive market. We can understand the urge to waive your appraisal contingency, but there are some things that you need to understand as a homebuyer prior to doing this.
Let’s start off by defining what a home appraisal is.
A home appraisal is conducted by a licensed appraiser, and it is a detailed comparative market analysis that assures yourself, and your lender that the price you have agreed to pay for the home is fair. Home appraisals are supported by local comparable properties that have recently sold.
Now, let’s talk about why a home appraisal contingency exists.
A home appraisal contingency gives a home buyer the right to back out of a ratified purchase agreement and recoup their initial deposit in the event the property does not appraise for the offer amount.
Why would a homebuyer ever consider waiving a home appraisal contingency?
In today’s competitive seller’s market, homebuyers at times will choose to waive their home appraisal contingency in an effort to make their offer more striking. This is not for the faint of the heart, and a homebuyer must understand the potential repercussions of waiving this contingency.
What are my options in the event I waived my appraisal contingency but the property did not appraise at or above value?
- Refute the low appraisal, or, order a second appraisal pending the seller’s oblige.
- Negotiate with the seller to reduce the purchase price.
- In the event options one and two do not work out, you would need to pay the difference between the appraised value and the purchase price.
What are the repercussions of waiving your appraisal contingency and the property is appraised below purchase price?
You could be in breach of contract if you are unable to complete the purchase, therefore, you could lose your initial deposit which is typically 2.5% of the purchase price.
So, should you waive your appraisal contingency in an effort to be the winning bidder of a home?
There is no one size fits all answer to this question. At times, it can be mutually beneficial to both the buyer and seller for a buyer to waive an appraisal contingency, but it completely depends on the buyer’s financial abilities, and risk tolerance. If the buyer base for the home in question is super competitive, a buyer may want to consider waiving an appraisal contingency. We do not suggest doing this until you have had detailed conversations with your Realtor, lender, and only after reviewing detailed comps to ensure you are offering a price that will not likely be above the appraised value.
Torben Yjord-Jackson – Realtor
EXP Realty of CA, Inc.
License # 02050831