When it comes to buying a home, the appraisal contingency is a crucial step that you should think twice before waiving. Whether you are a first-time buyer or a seasoned homeowner, this clause ensures that you pay the right price for the property. Whether you are looking to purchase your dream home in Glendale, CA or a vacation house in Providence, RI, it’s important to understand the implications of including or waiving the appraisal contingency.
Key takeaways
- An appraisal contingency provides financial protection and is usually a wise choice to include.
- While waiving the appraisal contingency can be risky, there are situations where it may be appropriate, such as when paying in cash or being confident in the property’s value.
- Waiving the appraisal contingency can also make your offer more attractive, especially in a competitive market.
What is an appraisal contingency?
An appraisal contingency is a clause in the real estate purchase agreement that allows the buyer to renegotiate or withdraw from the sale if the property’s appraisal value is lower than the agreed purchase price. This protects the buyer from overpaying for a property based on the appraised value.
Pros of an appraisal contingency
- Financial protection
- Negotiation leverage if the appraised value is lower than the purchase price
Cons of an appraisal contingency
- Potential for a weaker offer (sellers may prefer offers with fewer contingencies)
- Possibility of renegotiation changes
How does an appraisal contingency work?
- The buyer and seller agree on a purchase price.
- A licensed appraiser evaluates the property to determine its value.
- If the appraised value is equal to or greater than the purchase price, the sale proceeds.
- If the appraised value is less than the purchase price, the buyer can renegotiate, request repairs, or walk away.
Should I waive the appraisal contingency?
While you can waive the appraisal contingency, it is generally advisable to keep it in place. However, there are scenarios where waiving it may be appropriate:
- If you’re paying in cash: Waiving the contingency can make your offer more appealing to the seller if you are not relying on financing.
- If the property is in high demand: In a competitive market, waiving the contingency may strengthen your offer.
- If you are confident in the property’s value: If you have thoroughly researched and are certain about the property’s worth, you may consider waiving the appraisal contingency.
However, if you waive the appraisal contingency and the property does not appraise for the purchase price, you may be required to cover the price difference in cash.
FAQs about waiving an appraisal contingency
For more information, here are some frequently asked questions about waiving the appraisal contingency:
Why should I include an appraisal contingency?
An appraisal contingency offers financial protection and the flexibility to renegotiate or withdraw from the deal if the appraised value is lower than the purchase price.
Do I have to pay for the appraisal?
Typically, the homebuyer is responsible for covering the cost of the appraisal as part of the closing costs.
How much does an appraisal cost?
The cost of an appraisal can vary from a few hundred to several hundred dollars, depending on factors like the property’s location, size, and complexity.
How long does an appraisal take?
The timeframe for an appraisal can range from a few days to a few weeks, depending on the appraiser’s workload and the property. While the appraisal is valid for 120 days, the appraisal contingency deadline is typically within 7-10 days.