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An appraisal contingency is one of the most common contingencies in a real estate contract. Designed to protect buyers, an appraisal contingency allows a buyer to back out of the contract if the property doesn’t appraise for the amount of the purchase price or higher.
As a buyer, if you exercise this option, you should be able to get your earnest money back and not be required to follow through on the purchase of the property.
What Is An Appraisal In Real Estate Based On
In real estate, an appraisal is an objective value of a property. Real estate appraisals are based on “comps” (comparisons to similar properties that have sold recently in the nearby area) and market trends. If you’re obtaining financing for a property that you’re considering purchasing, most lenders will require an appraisal. They’ll choose the appraiser, but you’ll have to pay for the appraisal (even if you don’t close on the property).
What If A Property Doesn’t Appraise For The Amount Of The Purchase Offer
If a property doesn’t appraise for the amount of the purchase offer, buyers have several options, including:
•getting a second appraisal
•renegotiating with the seller to lower the price of the property
•following through with the purchase, at the original agreed upon amount
•backing out of the sale by exercising the appraisal contingency
What If A Property Appraises Higher Than The Amount Of The Purchase Offer
If a property appraises higher than the amount of the purchase offer, that’s great news for the buyer. Note that a higher appraisal doesn’t mean that the seller can now change the price of the property, so, in theory, a higher appraisal means that the buyer is getting a bit of a deal.
Waiving An Appraisal Contingency
As a buyer, you can always waive the appraisal contingency, and buyers who are paying cash often do this. Even if you’re obtaining financing for the property, you can still waive the appraisal contingency. But if the property doesn’t appraise for the amount you offered, and your financing falls through, you could lose your earnest money and potentially face other penalties for not closing on the property.
We’re Here For You – Experienced Real Estate Attorneys
If you have a dispute over an appraisal contingency clause or any other aspect of a real estate contract, we can review your real estate contract and let you know your options.
See related topics:
Earnest Money – Real Estate Sales Contract
Inspection Contingency – Real Estate Sales Contract
Financing Contingency – Real Estate Sales Contract
Title Contingency – Real Estate Contract
Property Sale Contingency – Real Estate Contract
At Timely Contract, we have local real estate attorneys who have experience throughout Idaho, including: Boise, Post Falls, Coeur d’Alene, Lewiston, Moscow, and Sandpoint.
We also have local real estate attorneys who have experience throughout Montana, including: Missoula, Billings, Bozeman, and Kalispell.
And we have local real estate attorneys who have experience throughout Washington, including: Spokane, Spokane Valley, Liberty Lake, Medical Lake, and Cheney.