Q: Do you have to have an appraisal contingency? What happens if you don’t?
A: If you need to finance your home purchase (you’re not paying for it in cash), you will have an appraisal, but it’s up to you (and your finances) as to whether you have an appraisal CONTINGENCY.
Here’s how it works:
The appraisal process starts after your offer is accepted. So let’s say when you go to write your offer, there are already 5 other offers on the property so you decide to write a more aggressive offer for $100,000 over the asking price.
After your offer is accepted and you open escrow, the lender orders an appraisal (from a neutral, third party appraisal company not affiliated with the bank) to make sure that the price you are agreeing to pay for the home (and the amount the bank is lending you) is the market value of the home. The appraisal protects the bank.
The appraisal contingency however, protects the buyer, in that the buyer can walk away or try to renegotiate with the seller if the house does not appraise at the contracted price. So if you do not have an appraisal contingency, and the home appraises for less than the accepted offer price, you have to come up with the extra cash to make up the difference. That is in addition to your down payment.
If you don’t have or don’t want to spend additional money at the time of the closing, you’ll need to make sure you have an appraisal contingency included in your offer.
Questions? Feel free to reach out. This is a delicate and case by case scenario that needs to be discussed in detail with your agent.