An appraisal contingency is a clause in a purchase contract that allows a home buyer to back out of the agreement without losing their earnest money deposit if the house is appraised for less than the purchase price.
The appraisal contingency is commonly used by buyers in areas where prices are volatile like California to protect themselves from overpaying for a home.
If the house you’re buying or selling does not appraise for what you thought, don’t panic! You have options to help make sure the sale still goes through.
As a seller, your options are to:
Your options as a buyer are:
If you are waiving an appraisal contingency, you are agreeing to pay the full amount regardless of what the appraisal says the value is.
The reasons to waive an appraisal contingency include:
Note: If you have a FHA loan or VA loan, appraisal contingency clauses cannot be waived.
Appraisal contingency clauses are nothing to worry about. They’re simply a protection for the buyer and they won’t always kill a deal. If the buyer is set on having it, you now know what one is and what your options are if the appraisal comes in lower than expected.
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