If you are buying a home and it appraises at a lower price than your contract price, you should carefully consider whether you want to waive an appraisal gap. In high-demand real estate markets where there are many more buyers than sellers, waivers of appraisals are common. Some buyers waive the appraisal gap to become a more competitive purchaser and land the contract.
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What is an appraisal contingency?
CoreLogic, Inc., an independent provider of real estate data, reports that appraisal gaps were present in 11% percent of residential transactions during June 2023. These gaps occur when homes appraise at less than their contract price. This is common in tight markets, where buyers bid higher to secure the property or sellers try to get the value they believe the market will bear regardless of the appraisal. By waiving the appraisal condition when buying a home, a buyer agrees to purchase the property at the agreed price regardless of what the appraised home value is. The buyer becomes a lock-in for sellers. By waiving an appraisal, buyers are putting themselves at risk if the appraisal comes in below the contract price. When there is a contingency clause in the contract that requires a mortgage, appraisals are required. Why? A lender’s mortgage commitment is usually conditional upon receipt of an acceptable appraisal. If the appraisal is lower than the contract value, the lender will adjust the loan-to-equity ratio. This may result in a lower mortgage approval, which may completely alter the buyer’s financial outlook.
What options are available to a buyer if the appraiser’s estimate is lower than the contract price?
A buyer may be able renegotiate a contract price if the appraisal value is lower. When there is a bidding war, the seller may not want to lower the contract value because there could be other offers, or buyers who qualify for the new mortgage. Buyers should be cautious when deciding whether to waive the appraisal. Before deciding to waive an appraisement, the following factors should be taken into consideration:
- Understand the situation. Ask your Realtor to provide comparable sales so that you can ensure that you’re not paying too much for the home. The buyer will be required to complete the purchase if the appraisal gap is waived.
- Limit liability. Limit liability.
- You can also ask for a reconsideration of value. Buyers can also request a reconsideration if they believe the appraiser’s value is not comparable to actual sales of homes similar to the one being purchased.
Due to a highly competitive real estate market and a lack of housing supply, many buyers who are obtaining mortgages while buying a home try to secure their contracts by waiving the appraisal. However, the lender will still conduct an appraisal to determine the loan. Buyers must understand the importance of waivers, unless they have enough cash to cover any difference in the case that the appraisal is not equal to the contract price or if they are working with a Bu Law Firm real estate lawyer to limit their exposure. Bonardi & Uzdavinis helps buyers to navigate the complex appraisal waiver process, and reduces risks. This ensures their interests are protected.
Feel Free To Schedule A Consultation
Contact Bonardi & Uzdavinis without delay to arrange a FREE consultation.
