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What if the house appraises for less than the offer?

Home buyersThe appraisal contingency is a clause in the sales contract that allows the buyer to back out of the contract if the property appraises for less than the purchase price. If the home does not appraise due to its value or condition, the earnest money will be returned to the buyer.

The appraisal is performed by a licensed real estate appraiser. The appraiser determines the property's value by comparing it to recently sold properties in the vicinity. The appraiser will analyze the property's general condition as part of the valuation procedure. Despite the fact that home appraisers are not home inspectors, they are trained to recognize potential problems. For example, if the appraiser sees sparking wires in the electrical box, he or she will ask for a professional electrician to evaluate the box. A roofer will be required to investigate water leaking through the roof. After completion, the appraisal report is submitted to the lender for review.

An appraisal is a professional estimate of a property's market value rather than a statement of fact.

Can I obtain a copy of my house appraisal legal?

According to the Consumer Financial Protection Bureau (CFPB), you have the legal right to a free copy of your home appraisal for a first-lien mortgage (CFPB). Lenders are required to send you a copy of the appraisal report no later than three days before your loan closes.

FHA, VA, and USDA Amendatory Contingency

As part of the FHA, VA, and USDA mortgages, the buyer, seller, and real estate agent (s) must all sign the Amendatory Clause/Real Estate Certification Form. The amendatory form is usually included in the sales contract. If the buyer is getting a loan from the FHA, VA, or USDA, the parties to the sales contract must sign the amendatory form as an amendment to the sales contract if it is not included in the sales contract. If the appraised worth of the home is less than the sales price, the home buyer might use the amendatory form to declare the contract null and void.

FHA AMENDATORY CLAUSE
It is expressly agreed that notwithstanding any other provisions of this contract, the purchaser shall not be obligated to complete the purchase of the property described herein or to incur any penalty by forfeiture of earnest money deposits or otherwise unless the purchaser has been given in accordance with HUD/FHA or VA requirements a written statement issued by the Federal Housing Commissioner, Department of Veterans Affairs, or a Direct Endorsement
Lender, setting forth the appraised value of the property of not less than $ _________. The purchaser shall have the privilege and option of proceeding with consummation of the contract without regard to the amount of the appraised valuation. The appraised valuation is arrived at to determine the maximum mortgage the Department of Housing and Urban Development will insure. HUD does not warrant the value or the condition of the property. The purchaser should satisfy himself/herself that the price and condition of the property are acceptable. Source: Department of Housing and Urban Development

Rotating question markFrequently Asked Questions About Appraisal Contingency

Q. Is it true that appraisals are less than market value?
A. Appraisals typically agree with market value; but, in a seller's market, market value regularly exceeds market value due to competition.

Q. Does the buyer have to disclose the appraisal to the seller?
A. The buyer is not compelled to reveal the appraisal unless it is indicated in the sales agreement or is required by state law.

Q. What is the duration of an appraisal contingency?
A. In a typical market, two weeks is a realistic amount of time to have the house appraised, but when purchasers are lining up to make an offer on a house, plan to wait at least four weeks.

Q. Is it customary to have an appraisal contingency?
A. Homebuyers who are looking for a mortgage often have appraisal contingencies. Even if the home buyer does not request an appraisal contingency, the lender will require one to ensure that the house is not overvalued.

Q. What does it mean to have an appraisal contingency?
A. An appraisal contingency means that the sale is contingent on the appraised value matching the sales price and the overall structural condition being met.

Q. What if the house appraises for less than the offer price?
A. If the appraisal contradicts the sales price, the buyer will ask the seller to lower the price to the appraised value.

Q. What happens if an appraisal contingency is no longer valid?
A. If the appraisal contingency expires, the buyer will not be allowed to back out of the deal owing to a low sales price or perhaps poor condition. However, if the house does not appraise for the sales price, the lender may reject the home buyer's application.

Q. What is the definition of a mortgage contingency?
A mortgage contingency is a condition in a sales contract that allows the buyer to cancel the transaction if he or she is unable to acquire financing within the timeframe specified in the contract.

Q. Who orders the appraisal?
A. The appraisal is ordered by the lender.

Q. Why is a second appraisal is necessary?
A. If the underwriter has concerns about the accuracy of the appraisal, a second appraisal will be requested.

Q. If I am rejected for a mortgage, will I lose my earnest money deposit?
A. You will not lose your earnest money if the sales agreement is properly worded and includes the normal mortgage contingency.

Q. Will the seller accept a lower offer after the appraisal?
A. Typically, sellers lower their sales price to match a low appraisal, but each circumstance is unique. Due to a large payoff, it's probable that the seller won't be able to cut the sales price.