How An Appraisal Contingency Protects Your Interests

How An Appraisal Contingency Protects Your Interests

What happens if you’re in the process of purchasing a house and your lender’s appraiser says the house is worth less than you agreed to pay? If you’re getting a conventional loan and included an appraisal contingency in your offer, the contingency helps protect your interests.

In PA, the appraisal contingency is a separate addendum that goes with your offer. The contingency allows you to terminate the agreement of sale within the contingency period as follows:

  • For purchases with lender financing, if the appraiser hired by your lender appraises the house for an amount lower than the agreed-upon purchase price.
  • For cash purchases, if the appraiser you hire appraises the house for an amount lower than the agreed-upon purchase price.
Alternatively—instead of terminating the agreement—the appraisal contingency allows you to come to a mutually acceptable written agreement with the seller if the houses appraises for an amount lower than the purchase price.

The default time frame in the standard PA appraisal contingency addendum is 30 days, but the parties can negotiate a longer or shorter period.

Many buyers do include an appraisal contingency in their offer. However, there are some select cases where you might consider leaving it out. For example, if you know in advance that the seller has already received multiple offers, you may leave it out to make your offer better in the seller’s eyes. In this case, you would be indicating that you’re comfortable with the price offered and don’t intend to back out if the appraisal is low. The choice is yours—but If you forgo the appraisal contingency, you’d be giving up a useful tool for protecting your interests.

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Copyright @ 2020 by Annette Nelson. All Rights Reserved.