Appraisal Contingency?
What exactly is an appraisal contingency and is this now a common negotiating tactic for buyers? Is a mortgage contingency the same thing? Are sellers allowing such things these days?
What exactly is an appraisal contingency and is this now a common negotiating tactic for buyers? Is a mortgage contingency the same thing? Are sellers allowing such things these days?
It used to almost always be in an offer, but starting about 10 years ago when things went crazy and dozens of people were knocking down doors and bidding wars were common for pieces of overpriced junk, sellers sometimes wouldn’t accept an offer with a contingency at all because they knew tomorrow or later in the same day they would get another offer without a contingency in hand. Now, though, a seller would be crazy not to accept any offer they can get as long as the price itself is acceptable. As long as it is priced correctly with no hidden “features” an appraiser might find, appraises like it should based on comps and unique factors, and the potential buyer can actually get the mortgage, you still have a done deal. Turning down an offer because of a contingency simply means no chance at all of selling to that buyer and you’re back on the market for how many more days-weeks-year. If I’m a buyer and put out an offer contingent on just those things, as long as they go through then I’m buying. If a seller turns down my offer because of the contingency, then I’m walking elsewhere and giving someone else my money. There are few “unique” houses here in Brooklyn. Just go around the block or down the street to another similar rowhouse that is also for sale at about the same price. Only a seller with something to hide, or who knows their place is grossly overpriced and won’t get an appraisal at that amount would be scared off by an appraisal contingent offer, and only a fool would pay them an all-cash price at said overpriced amount. But it happens.
We got a coop appraisal back that came in crazy high. They used comps from Greenwood and Ditmas and Prospect Lefferts Gardens in a single appraisal. As the crow flies Greenwood isn’t far off. But as the dept of ed flies … not the same market.
It sounds like something that would be duplicative (in a belt plus suspenders kind of way) of a mortgage contingency. If the property doesn’t appraise for the sales price, you’re not going to get your mortgage on it.
And, yes, the appraisers they’re hiring these days are not doing great work. We bought our place in Prospect Heights, and the appraiser used places in Bed-Stuy as comps, instead of using any of the dozens of comps that were closer.
In a hot market a seller has more leverage because there are usually multiple offers on a singular property. In today’s market, the seller loses the leverage which swings into the hands of the buyer.
When purchasing a home with financing an appraisal is something that must be done. The bank wants to know that their behinds are covered for at least the financed price.
To answer your question, a appraisal contingency is a clause that’s in the contract to protect the buyer. Their arent many buyers that want to buy a home for MORE than it’s worth. So they”ll include this clause to protect themselves. If the home does not appraise for a specific amount, the buyer has the right to walk. Which in a down market is common.
It might be that the property appraises at or above contract value? Currently most banks are notorious for underappraising and I’ve had 1st hand experience with a very incompetent bunch of appraisers. They have no understanding of the value of NYC properties and look like they are from mid america and are unqualified for their jobs. They make TSA look like rocket scientists!