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Appraisal Contingency

StartingOver10
Moderator Emerita

Re: Appraisal Contingency

Congrats! Glad your offer was accepted. I hope your agent is on board now Smiley Happy

Message 11 of 26
Revelate
Moderator Emeritus

Re: Appraisal Contingency


@StartingOver10 wrote:

Rev, there are a couple of questions you asked in your post.

1) What are the options: 

  • Buyer can pay over appraised value to meet sales price
  • Seller can reduce price to meet appraised value
  • Some negotiation in the middle
  • Walk away
  • Contest the appraisal - have an appraisal review.  An appraisal review on a FHA appraisal is fruitless. They will go through the steps but you end up with the same valuation and the property is stuck with that value for 6 months so even if the deal falls apart, the seller can't get another FHA financed contract.  It is different for conventional loans - pay for another appraisal and you are likely to get a different value. Also the appraisal doesn't poison the property value for six months like an FHA appraisal.

2) What happens to the EMD? 

It should be specified in your contract that if the property does not appraise, then the EMD is returned to you. After all, that is what a finance contingency is - and your lender can only finance the purchase price or the appraised value, whichever is lower.  So now you automatically can't get financing if the property doesn't appraise and the buyer and seller can't agree on another mutual value.

 

I really don't understand the reason for keeping the EMD if the property doesn't appraise. Otherwise why do we have these finance contingencies? It is a property valuation issue, not a buyer issue. Besides any decent listing agent is going to line up backup offers on the property if there is a doubt about the appraisal value and the contract closing.


Ah I see, I think.  Basically in the financing contingency I can write in something like: contingent upon buyer arranging a minimum financing amount of X at such and such a APR?  X being Offer price - Downpayment.

 

That way if the appraisal comes low, and I can't finance that amount as a result, it falls apart there and I get back the EMD?

 

In which case why the double-up?  Think I'm likely confused at this point Smiley Happy

 

@OP: Congrats senor!




        
Message 12 of 26
StartingOver10
Moderator Emerita

Re: Appraisal Contingency

Rev, I don't know your state contract form - ours have a finance contingency that has those fill in the blank type where the terms of the loan are specified: eg, conventional loan at 95% LTV for ___ rate (this is important in rapidly rising interest rate markets) . Check your finance contingency clause.

 

As to 'doubling up' - you are actually putting the seller on notice when you put in an appraisal contingency that you need the property to appraise to complete your financing - that way there is no issue if the property comes up short. Handy in todays market, especially if you are going to limit the $ amount you pay above appraisal.

Message 13 of 26
Revelate
Moderator Emeritus

Re: Appraisal Contingency


@StartingOver10 wrote:

Rev, I don't know your state contract form - ours have a finance contingency that has those fill in the blank type where the terms of the loan are specified: eg, conventional loan at 95% LTV for ___ rate (this is important in rapidly rising interest rate markets) . Check your finance contingency clause.

 

As to 'doubling up' - you are actually putting the seller on notice when you put in an appraisal contingency that you need the property to appraise to complete your financing - that way there is no issue if the property comes up short. Handy in todays market, especially if you are going to limit the $ amount you pay above appraisal.


Interesting.  There is a similar fill in the blank portion used here too for loan contingency.

 

Really I don't know much to be honest, but how many folks waive the appraisal contingency?  It's boilerplate in our state form, have to mark the box to get it skipped and end of the day the appraisal is more for the lender than for me, and if the lender backs out... while I'd try like hell to negotiate if there was no recourse I'm not going to fund say 50K out of my remaining assets.

 

 




        
Message 14 of 26
StartingOver10
Moderator Emerita

Re: Appraisal Contingency

Very few in my area waive the finance contingency - unless they are cash so it doesn't apply.

Message 15 of 26
Marlena
New Contributor

Re: Appraisal Contingency


@Revelate wrote:

@StartingOver10 wrote:

Rev, I don't know your state contract form - ours have a finance contingency that has those fill in the blank type where the terms of the loan are specified: eg, conventional loan at 95% LTV for ___ rate (this is important in rapidly rising interest rate markets) . Check your finance contingency clause.

 

As to 'doubling up' - you are actually putting the seller on notice when you put in an appraisal contingency that you need the property to appraise to complete your financing - that way there is no issue if the property comes up short. Handy in todays market, especially if you are going to limit the $ amount you pay above appraisal.


Interesting.  There is a similar fill in the blank portion used here too for loan contingency.

 

Really I don't know much to be honest, but how many folks waive the appraisal contingency?  It's boilerplate in our state form, have to mark the box to get it skipped and end of the day the appraisal is more for the lender than for me, and if the lender backs out... while I'd try like hell to negotiate if there was no recourse I'm not going to fund say 50K out of my remaining assets.

 

 


Our market is finally starting to move again, but we're nowhere yet near folks removing the appraisal contingency. It's still very much a standard part of our generic offer agreements in this area. The market, while competitive, is not yet to a point that people are comfortable being underwater from the jump.

 

I walked away from my first deal because the appraisal came in low, the seller wouldn't budge, and I wasn't willing to pay more than appraised market value. Of course, my situation was different because there are not many people here willing to pay over appraisal yet, so merely offering asking price is still enough to get an offer accepted. In fact, 5% under asking is still a pretty safe initial offer and has a more than fair chance of being accepted.

 

I personally wouldn't offer or pay above appraisal, and I wouldn't waive appraisal contingency, but I can understand how some people in some markets might have to in order to close a deal. We're just not there yet, thankfully (for the buyer anyway).

Experian 786, Equifax 799, TU 786 (4/15)
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Message 16 of 26
Revelate
Moderator Emeritus

Re: Appraisal Contingency


@Marlena wrote:

@Revelate wrote:

@StartingOver10 wrote:

Rev, I don't know your state contract form - ours have a finance contingency that has those fill in the blank type where the terms of the loan are specified: eg, conventional loan at 95% LTV for ___ rate (this is important in rapidly rising interest rate markets) . Check your finance contingency clause.

 

As to 'doubling up' - you are actually putting the seller on notice when you put in an appraisal contingency that you need the property to appraise to complete your financing - that way there is no issue if the property comes up short. Handy in todays market, especially if you are going to limit the $ amount you pay above appraisal.


Interesting.  There is a similar fill in the blank portion used here too for loan contingency.

 

Really I don't know much to be honest, but how many folks waive the appraisal contingency?  It's boilerplate in our state form, have to mark the box to get it skipped and end of the day the appraisal is more for the lender than for me, and if the lender backs out... while I'd try like hell to negotiate if there was no recourse I'm not going to fund say 50K out of my remaining assets.

 

 


Our market is finally starting to move again, but we're nowhere yet near folks removing the appraisal contingency. It's still very much a standard part of our generic offer agreements in this area. The market, while competitive, is not yet to a point that people are comfortable being underwater from the jump.

 

I walked away from my first deal because the appraisal came in low, the seller wouldn't budge, and I wasn't willing to pay more than appraised market value. Of course, my situation was different because there are not many people here willing to pay over appraisal yet, so merely offering asking price is still enough to get an offer accepted. In fact, 5% under asking is still a pretty safe initial offer and has a more than fair chance of being accepted.

 

I personally wouldn't offer or pay above appraisal, and I wouldn't waive appraisal contingency, but I can understand how some people in some markets might have to in order to close a deal. We're just not there yet, thankfully (for the buyer anyway).


If the difference is below my trivial line (80% of the 7.5K over 30 years, and 20% of 7.5K up front = trivial as a recent example from the seller's counter offer) then I could see paying above appraisal; however, regarding contingency, when taking a shot at something that not even the RE professionals know where it's going to appraise at unless they pull the standard and appraise at the offer price... I just can't justify it even with S10's experience and wisdom.  I'm willing to admit I'm probably wrong but still don't think I'd ever do it unless I'm at the point where the repercussions of money spent don't matter, but that's a long, long ways off if ever.

 

I'm really not thinking about it as it's something I have no control over and what happens happens, but if it appraises substantially lower than offer (and it quite possibly might, hard to say when the apparent cost justification is around the view and a little bit on sq. footage compared to other units in that complex, one looks like it'll close just before me list 720k but worst view in complex), well, I'm awfully good at making hard decisions but this one might be beyond me without massive amounts of alchohol.

 

 




        
Message 17 of 26
Marlena
New Contributor

Re: Appraisal Contingency

Yeah, I hear you, Rev. My low appraisal story has an amusing and ironic end. After I walked, the seller relisted the house at the same (over appraisal) asking price. That was in March. I checked the listing the other day and the house is now listed at the appraised value, which is what I was willing to pay in the first place. They could have closed our deal, at that price, 3 months ago. The real kicker is that it we were set for a double close that day - our deal was closing in the morning and their closing on their new house (which was contingent on closing our morning deal) fell through because we didn't close our deal. So not only did they lose our deal, they lost their deal on the new house at the same time.

 

I finally just decided that either they or their agent (or both) are just plain stupid. Or greedy. Or stubborn. Or all of the above. Or maybe one of them (sellers were a married couple) secretly just doesn't want to sell the house and move. I don't know. The whole thing made no sense. Maybe I should try your Scotch method of enlightenment to gain some insight into that mess.

Experian 786, Equifax 799, TU 786 (4/15)
Experian 786, Equifax 791, TU 786 (5/15) EQ dinged 8 pts for HP from Discover App

Trying to hit 800! Just because.
Message 18 of 26
StartingOver10
Moderator Emerita

Re: Appraisal Contingency

Rev, we don't have a checkbox in our forms for waiving appraisal contingency. We have to have a separate addendum added to the contract to waive the appraisal contingency so it is slightly different here than where you are located. The default position here is that the appraisal contingency is remains in the contract.

 

Also, with our market, it is more common for the buyer to pay some limited $ over appraised value, but the limit is specified as opposed to open ended. With the appraisal contingency waived - you leave that value open ended and that is much more risky for the buyer to do.

Message 19 of 26
Revelate
Moderator Emeritus

Re: Appraisal Contingency


@Marlena wrote:

Yeah, I hear you, Rev. My low appraisal story has an amusing and ironic end. After I walked, the seller relisted the house at the same (over appraisal) asking price. That was in March. I checked the listing the other day and the house is now listed at the appraised value, which is what I was willing to pay in the first place. They could have closed our deal, at that price, 3 months ago. The real kicker is that it we were set for a double close that day - our deal was closing in the morning and their closing on their new house (which was contingent on closing our morning deal) fell through because we didn't close our deal. So not only did they lose our deal, they lost their deal on the new house at the same time.

 

I finally just decided that either they or their agent (or both) are just plain stupid. Or greedy. Or stubborn. Or all of the above. Or maybe one of them (sellers were a married couple) secretly just doesn't want to sell the house and move. I don't know. The whole thing made no sense. Maybe I should try your Scotch method of enlightenment to gain some insight into that mess.


Yeah, sometimes people don't do very smart things (myself included, often).  

 

I thought once the appraisal happened right or wrong it stuck with the property unless overridden by another appraisal?  Guess I don't really understand the reluctance to negotiate unless it's in a rapidly rising market... how much over the appraisal was your offer?




        
Message 20 of 26
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