What is An Appraisal Contingency and How Can it Impact Your Homebuying Journey?
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Loading... - Imogen Fletcher
- 03 Mar 2023
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Are you a first-time homebuyer? Or are you a seasoned buyer looking to upgrade or downsize your living space? Regardless of your experience, navigating the housing market can be daunting, especially when it comes to understanding the complex jargon and legalities involved in purchasing a property. One important concept that all homebuyers should be familiar with though is the appraisal contingency. In this guide, we will explore what an appraisal contingency is and how it can impact your homebuying journey.
What is an appraisal contingency?
An appraisal contingency is a clause in a real estate contract that allows the homebuyer to back out of the transaction or renegotiate the terms of the sale if the property appraisal comes in lower than the agreed-upon purchase price.
When a buyer applies for a mortgage to purchase a home, the lender requires an appraisal of the property to determine its fair market value. If the appraisal comes in lower than the agreed-upon purchase price, the buyer may not be able to obtain financing for the full amount, and may have to pay the difference out of pocket or renegotiate the terms of the sale.
With an appraisal contingency in place, the buyer can protect themselves from being obligated to pay more than the fair market value of the property. If the appraisal comes in lower than the purchase price, the buyer has the option to back out of the sale without penalty or renegotiate the terms of the sale to reflect the appraised value.
What is a contingent offer?
A contingent offer is a type of offer made by a buyer to purchase a property that is contingent upon certain conditions being met. These conditions typically relate to the sale of the buyer’s current property, securing financing, passing a home inspection, or the home being appraised reflects fair market value.
For example, a buyer might make a contingent offer on a property they want to purchase, but the offer is contingent upon the sale of their current home. If their home sells within a specified period, the contingent offer becomes a firm offer and the sale proceeds as planned. Read More…
