Appraisals and Appraisal Contingency

Appraisal Issues and how to handle them

When a home doesn't appraise, there are usually a few options.  This will depend on the type of financing and/ or if it is a cash deal

1. Cash Deal:
   1. If the buyer wants an appraisal, or ensure that the property appraises for a certain amount, you will want to include an appraisal contingency in the offer to purchase.  And inlclude the following language:
   2. If the property does not appraise at the purchase price listed in the purchase agreement, seller agrees to reduce purchase price to appraised value.  OR if seller refuses to reduce purchase price to the appraised value, buyer reserves right to terminate purchase agreement and receive refund of earnest money
2. Financed Deal
   1. a lender will usually require that an appraisal be performed as part of the purchase of the property.   Not always, but usually.  The contingency is usually listed on the pre-approval letter
   2. if the offer to purchase is contingent upon obtaining bank financing, then the buyer is usually protected by that contingency
   3. Language to include:
      1. Property must appraise at or above purchase price reflected in Purchase Agreement.  If the property does not appraise at the purchase price listed in the purchase agreement, seller agrees to:
         1. reduce purchase price to appraised value.  
         2. OR if seller refuses to reduce purchase price to the appraised value, buyer reserves right to terminate purchase agreement and receive refund of earnest money.  
         3. Buyer reserves right to make up the difference in appraisal, up to  $x,xxx.  <Note, you will want to ensure the bank will allow this.  Not all banks will allow this>

Contacting the appraiser:

• Contact the appraiser:   Depending on whether or not your client wants you to, you can contact the appraiser and discuss the appraisal.   It is very important to remain respectful and thank them for their time.
  • Compile a list of compareable properties
  • Review the appraisal for accuracy against the subject property
    • Square footage
    • Number of bedrooms
    • Bathrooms
    • Special upgrades or amenities