What is an appraisal contingency and why you need to add it in your purchase contract.
First, let’s talk about what exactly is an appraisal.
An appraisal is a professional report that estimates the value of the house. The appraiser will do a detailed inspection of the interior and exterior of the house. They will:
- research county and municipal records, Multiple Listing Service (MLS) records for information and documentation concerning the subject property and market area,
- review recent sales of properties with similar utilities, square footage and other major features of the house.
What is an Appraisal Contingency?
This is a clause in the purchaser’s contract that the buyer proposes. It states that in the event the appraisal is less than favorable, the buyer can withdraw from the contract, and recover their deposit, without any legal implications. The home will be ‘contingent‘ until the contingency is fulfilled.
Why do I Need an Appraisal Contingency?
If you are selling or buying your home with traditional financing, then the lender’s bank will require an appraisal to be done. If the appraisal comes in too low, then the bank will not fund the transaction and the deal is null and void.
If you are surprised by a lower than expected home appraisal, this clause ensures you have the option/ flexibility to walk away from a deal with your deposit, rather than without it. Basically, it’s your insurance policy.
It is completely up to you, however, we at The Residential Buyer, would recommend including it since the appraisal and financing of the buyer’s future home is completely out of their control.
How Can I Increase My Home Appraisals?
Contrary to belief, accompanying your appraiser, as they do their inspection of your home, can help improve your appraisal; this way you can give the appraiser up to date and relevant information on the home and any improvements that have been made.
- Requesting a surveyor who is acquainted with the area
- Request an appraiser with experience and who is a member of a credible surveying body
- Ensuring a surveyors report is available for the surveyor
- Do a deep clean of the home’s interior (including some junk removal) and groom the exterior
- Complete any minor repairs, such as:
- Scratched paint
- Ensure all the doors close properly
- Leaky faucets and damaged light fixtures light fixtures
- Complete any major repairs, such as:
- Old HVAC system
- Outdated plumbing and electrical
These are some of the things the appraiser will be looking out for.
When all is done, ensure to review the appraisal to ensure that everything is accurate.
How Often do Appraisals Come in Low?
You’d be surprised at how often appraisals come in low.
A home appraisal can be low if the area is currently experiencing, what is called, a seller’s market (this is when the demand for homes is greater than the amount of homes available). This type of market can cause a seller to overestimate the value of their home (due to bidding wars that cause homes, in that specific market, to sell for far more than their true market value).
The sale isn’t always dead after a low appraisal, there are other options to consider after a low appraisal.
Do I need an Appraisal?
In traditional sales, a bank will always require an appraisal. However, if you sell to a home buyer like The Residential Buyer, we will never require a home appraisal. Really… since we buy homes directly from you, we don’t require an appraisal. This allows you to sell your house fast and ensure that a bank doesn’t blow up your transaction.
We buy homes for Terms OR cash fast in North Carolina and South Carolina.
If you’re interested in selling your home or wondering “How much is my home worth?“, reach out to us so we can send you the highest offer on your home.