What is waiving appraisal contingency?
Waiving appraisal contingency is a strategic decision made by a home buyer during a real estate transaction. In a typical home purchase, the buyer includes an appraisal contingency clause in the purchase contract. This clause allows the buyer to back out of the deal if the home appraisal comes in lower than the agreed-upon purchase price. However, by waiving the appraisal contingency, the buyer is essentially agreeing to proceed with the purchase even if the home appraisal falls short.
By waiving the appraisal contingency, the buyer is taking a calculated risk. If the appraisal comes in lower than the purchase price, the buyer may have to come up with the extra cash to cover the difference, negotiate with the seller to lower the price, or potentially walk away from the deal altogether.
While waiving the appraisal contingency can make a buyer’s offer more attractive to a seller in a competitive market, it’s important for buyers to carefully consider the potential risks and implications before making this decision.
FAQs about waiving appraisal contingency:
1. Why do buyers waive the appraisal contingency?
Buyers may choose to waive the appraisal contingency to make their offer more competitive in a hot real estate market where bidding wars are common.
2. What are the risks of waiving the appraisal contingency?
The main risk of waiving the appraisal contingency is the potential for the home appraisal to come in lower than the purchase price, leaving the buyer responsible for covering the difference.
3. Are sellers more likely to accept offers with waived appraisal contingencies?
Yes, sellers may be more inclined to accept offers with waived appraisal contingencies because it reduces the risk of the deal falling through due to a low appraisal.
4. Can buyers still negotiate the purchase price after waiving the appraisal contingency?
Buyers can try to negotiate with the seller to reduce the purchase price if the appraisal comes in lower than expected, but the seller is not obligated to agree to a price reduction.
5. What happens if a buyer waives the appraisal contingency and the home appraisal is higher than the purchase price?
If the home appraisal comes in higher than the purchase price, it can benefit the buyer by increasing the home’s equity and potentially leading to a lower interest rate on their mortgage.
6. Is waiving the appraisal contingency common in real estate transactions?
Waiving the appraisal contingency is more common in competitive real estate markets where buyers need to make their offers more attractive to sellers.
7. How can buyers protect themselves when waiving the appraisal contingency?
Buyers can protect themselves by doing thorough research on the property’s value, having a strong understanding of the local market, and working closely with a knowledgeable real estate agent.
8. Can a buyer waive the appraisal contingency after the offer has been accepted?
Waiving the appraisal contingency typically needs to be done before the offer is accepted, as it is a condition of the purchase contract.
9. Are there any alternatives to waiving the appraisal contingency?
Buyers can explore alternative options such as a financing contingency or a home inspection contingency to protect themselves in case the appraisal comes in lower than expected.
10. Does waiving the appraisal contingency affect the buyer’s ability to secure financing?
Waiving the appraisal contingency does not directly impact the buyer’s ability to secure financing, but it can affect the terms of their mortgage loan if the home appraisal comes in lower than expected.
11. Can buyers still walk away from the deal if they waive the appraisal contingency?
If a buyer waives the appraisal contingency and the home appraisal comes in significantly lower than the purchase price, they may still have the option to walk away from the deal depending on the terms of the purchase contract.
12. How should buyers weigh the pros and cons of waiving the appraisal contingency?
Buyers should carefully consider their financial situation, the current market conditions, and the potential risks involved in waiving the appraisal contingency before making a decision. Consulting with a real estate professional can also help buyers navigate this important decision.