**Title: Understanding Appraisal Contingencies: A Guide for Homebuyers**
**What Is An Appraisal Contingency And When Should I Use It?**
A contingent offer on a house allows you to back out of a purchase agreement if you discover something about the home that compels you to cancel the sale. Contingencies ensure youre not buying a home with major problems or paying more than a mortgage lender is willing to finance.
Understanding appraisal contingencies and how they work is crucial when buying a home. Youll need to consider different types of contingencies and whether you need a particular one before making an offer.
**What Is An Appraisal Contingency?**
An appraisal contingency protects your finances when you make an offer on a home. A home appraisal determines the fair market value of the home youd like to buy. In real estate, a contingency is a condition that must be met before an offer can proceed, acting as a safety net. If the home doesnt appraise for the amount youve agreed to pay, you can walk away from the deal with your earnest money deposit.
Your real estate agent might recommend including one or more contingencies when you make an offer. Contingencies arent individual contracts but are included alongside your offer. The seller can accept or reject your contingencies as part of accepting your offer.
**Appraisal Contingency Addendum**
Often, there is a special, separate form outlining the specific appraisal contingencies that both buyer and seller will sign. This form is called an appraisal addendum, and it varies by state.
**How Does An Appraisal Contingency Work?**
Your lender orders a home appraisal during your loan application. A state-licensed appraiser evaluates the house and the area its in, then provides a professional opinion of the homes worth. Lenders require appraisals to ensure youre not borrowing more money than the home is worth.
If the appraisal comes back lower than your offer, you have a few options. You could ask the seller to lower the sale price, come up with the cash to cover the difference, or back out of the sale. An appraisal contingency gives you leverage in negotiating a lower price.
Ultimately, you may have to walk away from the sale if you and the seller cant reach an agreement. Without an appraisal contingency, the option to walk away might not be available.
**Appraisal Contingency Removal**
If you decide to remove or waive appraisal contingencies, they must be removed in writing and signed by both buyer and seller to complete the real estate transaction. This typically requires an appraisal contingency removal form.
**How Does An Appraisal Contingency Protect You?**
Appraisal contingencies protect you and your lender from overpaying for your home. They safeguard you financially if theres a significant difference between the homes value and the purchase price you agreed to pay.
Waiving an appraisal contingency clause can make life difficult if the home appraisal is low. You could risk breaking the contract and losing your earnest money deposit.
**What Happens If The House Appraises For Less Than The Offer?**
If the appraisal comes in lower than your offer, you and the seller have a few options:
1. **Petition for a Second Appraisal:** If you believe the appraisal is wrong, you may request a second appraisal. You need a reason to think the first appraisal was incorrect. Recent home sale data and documentation of improvements may help.
2. **Make a Larger Down Payment:** If you can cover the difference between the appraised value and the sale price, your lender may still offer you a loan.
3. **Ask the Seller to Lower the Sale Price:** Your lender will finance the loan if you can negotiate with the seller to lower the sale price to meet the appraised value.
4. **Combination of Both:** You might meet in the middle. For example, if theres a $20,000 difference, you might agree to increase the price by $10,000, and the seller might reduce the sale price by $10,000.
**When Should I Waive An Appraisal Contingency?**
An appraisal contingency isnt required for an offer letter. There are instances where it makes sense to include it and others where its strategic to waive it. Here are some examples:
1. **You Agree To Pay The Full Amount:** If you plan to pay the difference in full, consider making a larger down payment to cover the appraisal gap.
2. **Its A Sellers Market:** In a strong sellers market with high competition, waiving your appraisal contingency can strengthen your offer.
3. **Youre Buying With Cash:** Cash sales dont require an appraisal because theres no lender involved. Skipping it can make sense if youre buying with cash.
4. **Youre Indifferent To The Homes Current Value:** If youre looking for a fixer-upper or developing a property for future investments, you might not care about the current value and may waive the appraisal contingency.
**The Bottom Line**
An appraisal contingency clause can help protect your finances when you find your dream home and want to make an offer. If the home appraises for less than the agreed-upon sale price, the appraisal contingency lets you ask the seller to lower the price or walk away from the sale.
Are you in the market for a new house? Get started on your mortgage application with O1ne Mortgage Inc. to know how much you can afford to pay for your dream home. Visit [O1ne Mortgage Inc.](https://o1nemortgage.com) or call us at 888-372-8820 to speak with a mortgage expert, request a mortgage quote, or apply for a loan.
**Keywords:** appraisal contingency, home appraisal, real estate contingencies, mortgage lender, home buying process, O1ne Mortgage Inc., mortgage application, sellers market, cash sales, home value.
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