As a first-time homebuyer, it is easy to feel plenty of optimism as you search for your dream residence. And if you find your ideal house, it may seem likely that a home seller will accept your
Do You Need An Appraisal Contingency
Once you have signed the purchase and sales agreement, the property will be appraised by a licensed appraiser. The home appraisal is an estimate of what the property is valued at. The appraisal takes into account a number of factors such as the location of the home, the condition of the house, and recent sales of like homes in the area. The value that is determined by the appraiser is the maximum amount that can be loaned out by a mortgage company.
If you’re buying a $300,000 home, but the appraisal comes back at $297,000, you’ll need to pay the remaining $3,000 out of pocket in addition to the down payment and the closing costs that are paid up front at the time of purchase.
If the appraisal comes in too low, you might not have the necessary funds in your bank account to actually make the purchase of the home. Since you have already signed the purchase and sales agreement, you have signed a legally binding contract that states that you will in fact buy the home from the seller. If you break the agreement, you’ll lose your deposit, which could be a significant sum of money.
The Appraisal Contingency
Most purchase agreements contain something called an appraisal contingency. This is an out for the buyer in the case of a low appraisal. If the appraisal is less than the agreed upon price, there’s a way for you as a buyer to get out of the contract without taking a hit on your finances. You need this contingency to protect you.
Is Waiving The Appraisal Contingency Is A Good Idea?
You could be in a situation where you might consider waiving the appraisal contingency. This would be a case where you agree to pay the entire amount of the contract price, even in the event of a low appraisal. This gives the seller a clear message that you want the home no matter what. The only way that you should even really consider doing this is if there is a lot of competition for the home that you want to purchase. If an appraisal comes back much lower than expected, you’ll be expected to make up the difference in price. In most cases, it’s a good idea to keep the appraisal contingency in the agreement to protect yourself as a buyer.
How To Know For Sure
This is why it’s so important to hire a real estate agent. In many states, agents are able to give you advice on the best course of action for buying a home. You can also hire your own attorney to help you through the legal portions of the home buying process. In other states, attorneys are required for the sale of a home. These lawyers will be able to advise you as a buyer what’s in your best interest. Your attorney is there to protect you!