Once you make an offer on a home and the buyer accepts its, you think its a done deal. But, wait! The house is appraised for less than you offered and now you cannot get a mortgage from the bank. You've already signed the contract and paid a deposit. Does this mean that you are out of luck? No Need to Fear! This is where appraisal contingencies come into play!

 

Appraisal contingencies are a set of conditions that must be met within a set amount of time for a legally binding real estate contact to come into effect. There are 3 main contingencies that you will see within a real estate contract.

 

1. Appraisal Contingency

This contingency helps the buyer secure a mortgage by stating that the home must be appraised at the sale price or higher in order for the deal to go through. Your bank will send a licensed appraiser to find the market value of the home. This is calculated based on the condition of the home, its location, and comparable properties in the area. Whenever the house is appraised for less than the offer, the bank will only cover the amount the house is appraised for, leaving you short. At this point both the buyer and seller can walk away from the deal. If neither of you want to, you can ask your bank to complete a second appraisal to reassess the value of the home. If the second appraisal comes back with a higher value, you might be able to get the loan amount you needed.


2. Finance Contingency

Although similar to the appraisal contingency, the finance contingency depends strictly on the bank granting the loan. A bank can agree to a loan that meets the finance contingency, even if the home is appraised at less than your offer. If you cannot make up the difference in the home price you offered and what the bank provides, you can exit the contract. You can help avoid finding a house that you will not get an approved loan for by knowing what you can afford from the outset. Use this Mortgage Calculator to help!

 

3. Inspection Contingency

This contingency requires that the home pass an inspection. This is one contingency that you definitely never want to opt out of!

 

 

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