Appraisal Contingency Overview/Information:
Spotlight: “Buyer Waives the Appraisal Contingency” This means almost NOTHING. Why does it mean nothing ? There is NEVER an appraisal contingency on conventional unless it is added. You may want the buyer to WAIVE the FINANCING contingency (consult lender/attorney first) OR… Add an appraisal contingency to show where the property really needs to appraise and provide proof of funds for the shortfall. Like this Sale Price = 330k. Buyer can pay up to 15K over appraised value...so...add the FAR?BAR appraisal contingency at 315K and show the listing agent an addition POF for the 15K....if you are listing agent you should be asking for the POF and even better if you can get them to remove the Financing Contingency.
There is lots of confusion about an appraisal
contingency. Here are the basics (all answers are based on the Far/Bar
contract):
- What
does an appraisal contingency do for a conventional loan? Allows the
buyer to cancel the contract if property does not appraise and get their
escrow back or they can waive the contingency and proceed. There are
dates and deadlines for getting the appraisal and notifying the
seller. The seller can’t cancel the contract, nor are they obligated
to lower the price, though negotiating is common.
- What about
FHA/VA? FHA or VA loan includes an appraisal
contingency on the FHA VA addendum. In fact, FHA and VA will not make a
loan unless the seller agrees to an appraisal contingency (often an
amendatory clause provided by lender). Allows the buyer to cancel
the contract if property does not appraise and get their escrow back or
they can waive the contingency and proceed. There are no specified
dates/deadlines in the FHA/VA addendum. The seller can’t cancel the
contract, nor are they obligated to lower the price, though ) is common.
- Isn’t there an
appraisal contingency part of the financing contingency? No. There
is no appraisal-to-the-purchase-price contingency built into
the core FloridaRealtors/Florida Bar Contract. If a
buyer wants to have the option to get out of the contract if the
property fails to appraise to the purchase price, he or
she should use the Comprehensive Rider F, Appraisal
Contingency. Many
people incorrectly believe the language in the contract
financing paragraph acts as an appraisal-to-the-purchase-price
contingency in all cases. The appraisal language in the financing
provision only states that the buyer is able to potentially get out
of the deal should the appraisal not meet the terms of the Loan Approval.
As such, a lender may not require the property to appraise to the
purchase price if a buyer is contributing a large down payment. https://www.floridarealtors.org/law-ethics/library/florida-real-estate-contract-laws
- How do I find
the FHA/VA Addendum or Appraisal Contingency (for conventional buyers) in
Dotloop?
From your initial docs folder:
- Add document
- Templates
- Florida
Interactive Forms
i. Federal
Housing Administration/Veterans Affairs (FAR/BAR CR 5X E) FHA/VA
ii. Appraisal
Contingency (FAR/BAR CR-5x F)
- What if we get
a low appraisal and there is NO Appraisal Contingency? In is not
uncommon to have low home valuations in a hot real estate market. Home
appraisals are largely based on comparable home sales that closed
previously and prices/demand are trending upwards. In a real estate market
where supply can’t keep up with the demand, home buyers may get into
bidding wars. These bidding wars drive prices up. Sellers have a choice
and they will likely choose a home without an appraisal contingency.
In hot markets, it becomes virtually inevitable that home values will at
some point be unable to keep up with how quickly homes are selling. The result
– lower-than-expected appraised values. You may have heard that a property
is worth whatever someone is willing to pay for it. Here are some ideas
for what you can do:
·
Dispute the Appraisal
·
Renegotiate the Purchase Price
·
Increase Your Downpayment
- Can I use an appraisal contingency with an escalation clause? Yes.
- What if my buyer wants to back out of their
contract and get their deposit back?
If they have an appraisal contingency, then they are within their rights
to back out and get their deposit back. If they do not have an
appraisal contingency, then they may have an issue. Time to
negotiate. Can they still get the loan if it does not appraise? If
not, and they are within the financing contingency period, then they can
cancel due to a loan denial.
Handy Links: https://www.floridarealtors.org/news-media/news-articles/2020/07/financing-contingency-vs-appraisal-contingency
https://www.berlinpatten.com/understanding-the-appraisal-contingency/