In the world of real estate, there are many contingencies that can be included in a home purchase contract. These contingencies are designed to protect both the buyer and the seller in case something unexpected happens during the transaction process. One of the most common contingencies is the appraisal contingency, which allows the buyer to back out of the deal if the home does not appraise for the agreed-upon price. However, in today’s competitive market, many buyers are considering waiving this contingency in order to make their offer more attractive to sellers. In this Redfin article, we will discuss the pros and cons of waiving the appraisal contingency and help you decide if it is the right decision for you.
First, let’s understand what an appraisal contingency is and why it exists. When a buyer makes an offer on a home, they typically include a financing contingency, which states that the purchase is contingent on the buyer obtaining a loan. The lender will then require an appraisal to determine the value of the home. If the home appraises for less than the agreed-upon price, the lender may not be willing to lend the full amount, and the buyer may have to come up with the difference in cash. This is where the appraisal contingency comes into play. It allows the buyer to back out of the deal without penalty if the home does not appraise for the agreed-upon price.
Now, let’s look at the pros of waiving the appraisal contingency. The most significant advantage is that it makes your offer more attractive to sellers. In a competitive market, where multiple offers are common, waiving the appraisal contingency can give you an edge over other buyers. It shows the seller that you are serious about purchasing their home and are willing to take on the risk of the home not appraising for the agreed-upon price. This can be especially beneficial in a seller’s market, where homes are selling quickly and for above asking price.
Another advantage of waiving the appraisal contingency is that it can speed up the closing process. Without the contingency, there is one less step in the process, and the lender can move forward with the loan without waiting for the appraisal. This can be appealing to sellers who are looking to close quickly.
However, there are also cons to consider when waiving the appraisal contingency. The most significant risk is that the home may not appraise for the agreed-upon price, and you may have to come up with the difference in cash. This can be a significant financial burden, especially if you are already stretching your budget to purchase the home. It is essential to have a solid understanding of the local market and the home’s value before waiving the appraisal contingency.
Another disadvantage is that waiving the appraisal contingency can put you at a disadvantage if you are competing with other buyers who have not waived the contingency. If the home does not appraise for the agreed-upon price, those buyers may have the opportunity to negotiate a lower price, while you may be stuck paying the full amount.
So, should you be waiving the appraisal contingency? The answer depends on your individual situation and the current market conditions. If you are in a seller’s market and are confident in the home’s value, waiving the contingency may give you an advantage over other buyers. However, if you are in a buyer’s market or are unsure about the home’s value, it may be best to keep the appraisal contingency in place to protect yourself from potential financial risks.
In conclusion, waiving the appraisal contingency can be a strategic move in a competitive market, but it is not without its risks. It is essential to carefully consider your options and consult with your real estate agent before making a decision. Remember, the ultimate goal is to find a home that you love at a price that you can afford. By understanding the pros and cons of waiving the appraisal contingency, you can make an informed decision that is right for you. Happy house hunting!
The post Should I Be Waiving the Appraisal Contingency? appeared first on Redfin | Real Estate Tips for Home Buying, Selling & More.