Tuesday Takeaway: Do you need an appraisal contingency when you are financing the purchase of property?
Do you need an appraisal contingency when you are financing the purchase of property?
Lenders commonly require an appraisal contingency to avoid lending more than the home is worth. Buyers are also encouraged to include an appraisal contingency so that they can cancel a sale, under certain circumstances, and get refunded their escrow deposit. An appraisal is beneficial; however, it is not built into the FR/BAR Contract. Instead, it is an addendum, which means that it is an additional document that is added to the contract.
Some buyers prefer to waive an appraisal contingency as it makes their offer appear more attractive to sellers. When buyers opt-out of the appraisal contingency, generally, sellers believe that the buyers are serious and would be less likely to back out of the contract. Lenders may approve a loan without an appraisal contingency if the borrowers have a large down payment as they may be considered low risk.
All in all, an appraisal contingency is important for both the borrowers and the lenders. However, an appraisal is not mandatory, and there are several instances where it may be waived.