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What an Appraisal Contingency Does

Here’s what sellers need to know about the appraisal contingency.

Due to the real estate market changing so quickly and buyers writing offers that look very different from the norm, today I’m discussing the appraisal contingency. The appraisal is when the bank confirms what the home is worth. Three things can happen when the appraisal doesn’t match the purchase price:

  1. The seller decreases their price.
  2. The buyer pays the difference.
  3. The buyer and seller meet somewhere in the middle.

“What houses sold for last month is likely less than what they’re selling for right now.”

Let’s say you have a buyer under contract for your home for $400,000 and the bank comes back and says they think it’s only worth $375,000. The appraisal contingency in an offer is the buyer’s protection that they won’t be forced to come up with that $25,000. When we see buyers writing offers without appraisal contingencies, sellers don’t have to worry if the appraisal matches the purchase price. The market is moving very fast; what houses sold for last month is likely less than what they’re selling for right now. 

We’re in a rising market, so appraisals can’t always keep up. We aren’t seeing many appraisal issues, but appraisal insurance is always good to have as a seller. If you can get the buyer to waive the appraisal contingency or say they’re willing to pay the difference between the appraisal and purchase price, you’re in great shape. Sellers don’t need to have the home appraised, but plenty of buyers do, so it’s best if we can work it out to the seller’s benefit.

If you have further questions about appraisals or any other real estate matter, call or email me. I would love to help you.

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