The purchase contract for a home generally includes certain contingencies that must be satisfied for the transaction to be finalized. These contingencies are intended to protect the buyer. If a contingency has not been met, then the buyer can typically exit the contract without a penalty. In some cases, a buyer may waive certain contingencies in order to make his offer more attractive to the seller. This is especially true in competitive markets where there might be multiple offers on the same house. However, waiving a contingency can be extremely risky for a buyer and some contingencies may be more valuable than others.
The appraisal contingency allows the buyer to back out of the contact if the home appraises for less than the contract price. The appraisal impacts the financing terms for the home. The financing contingency states that the buyer can void the contract if he does not obtain adequate financing. If the appraisal is less than the contract price, the loan will be smaller because the lender sets the loan amount based on the appraisal value. If the loan is smaller, the buyer will have to find an alternative means of paying the purchase price. However, if the appraisal contingency is in the contract, the potential buyer can void the contract or renegotiate with the seller. In either case, the appraisal contingency gives the buyer options. Therefore, when the buyer is financing the home’s purchase, waiving the appraisal contingency is typically not recommended.
In some cases, however, a buyer may consider a waiver in order to enhance his offer. If the buyer is committed to purchasing a particular house and waiving the contingency could seal the deal, then a waiver could be reasonable. This would only be the case if the buyer is in a financial position to increase his down payment to cover a low appraisal and a lower mortgage.
An appraisal waiver may have no effect whatsoever on the attractiveness of the buyer’s offer. If the buyer is relying on financing and the house does not appraise for its purchase price, then the lender will either finance a percentage of the appraised amount or might not offer a loan to the purchaser at all. In this case, the financing contingency would not be met and the buyer could back out of the contract based on the failure of the financing contingency. The interconnectedness of the two contingencies could make it easier to waive the appraisal contingency regardless and not lose much by doing so.
The experienced team of attorneys at the Law Offices of Mark Weinstein, P.C. can help you litigate your real estate claims. Contact Mark Weinstein and his colleagues at (770) 888-7707 or visit them at https://www.markweinsteinlaw.com to find out how they can advise you.