Sweating the Appraisal Contingency?

Almost every real estate sale involves an appraisal contingency designed to protect the home buyer and mortgage lender from paying too much for the property. Appraisals are generated by licensed appraisers who are contracted to generate a third party’s opinion, using established criteria, to determine and document current market value.

Although I am a real estate agent in Northern Virginia and reference the local Realtor Association standard sales contract, I believe that the basic premise here is the same across the U.S., but you should check with your local agent for specifics. Appraisal contingencies are going to be a part of the contract so it will be easy to find.

An appraisal should get done in the 21 day period

• Contingency period: This is intended to give some teeth to getting the appraisal done quickly (about 21 days), but the NVAR version allows for the contingency to extend automatically. If a home seller really wants to put their foot down to enforce a deadline then they can submit a written Notice to the buyer. The buyer will have three days to respond to the Notice.

Once the appraisal is completed, the results are given to the buyer and the lender. Since the buyer is paying for it, the entire written appraisal will be provided either electronically or in paper form at some point. A few years ago, lenders required the buyer to submit a written request and then it would be mailed after settlement. These days buyers can get it quickly as a PDF through e-mail.

• The value is equal to or greater than the Sales Price: This is the ideal scenario that everyone got it right from the start. The buyer should submit the proper form removing the contingency to help the seller sleep at night.
• The value is okay but the property does not satisfy the lender’s conditions as satisfactory collateral: If the appraisal includes extreme conditions then the buyer cannot obtain any financing. Along with a notice voiding the contract, the buyer will need to provide a copy of these conditions and written rejection from the lender for financing to the seller.
• The value is not equal to the sales price: When this happens the buyer needs to provide a copy of the the appraised amount to the seller. At that point, if the seller elects to reduce the price to the appraised amount then everyone is still bound by the contract to go to settlement. If the seller says no, then the parties can come to a new agreement or declare the contract void.
• The appraised value is below the sales price: Yes, this is the same scenario as above, but a buyer who feels the property is worth it can pay the difference rather than walk away. An appraisal is an “opinion of value” and won’t take into account benefits that a buyer may put a premium on such as the top ranked Vienna school pyramid, walking access to the Metro, or a short work commute.

You may value a top school more than your appraiser

Appraisals are typically the most stressful part of the real estate transaction for the buyer and the seller.

Buyers don’t want to pay too much.

Sellers don’t want the sale to fall apart.

Helping determine a home’s market value is something professional real estate agents spend a lot of time on. Upgrades that don’t appear in tax records that online valuation apps like Zillow.com’s Zestimates use need to be factored in because home buyers value upgrades to kitchens, bathroom, roof or siding.

Your agent should give you their professional opinion after they have seen the home and compared it to local homes in the market to help target a value that meets the  opinion of an appraiser. Yes, there is homework involved!

Related articles

• How to prevent low property appraisals – fingers crossed? (agentgenius.com)
• Fannie Mae Tightens Up on Appraisals (annarborundressed.com)