When you receive an offer for your home, you will probably look at the offer amount first. After that, you might read through the rest of the contingencies on the purchase offer contract. One thing you will probably see is a contingency for a home appraisal. If you have never sold a house before, it might be helpful to understand why this is there, what it means, and the impact it can have on a real estate deal.
Buyers Protect Themselves with an Appraisal Contingency
When a person buys a house, they will insert numerous contingencies for protection. The home appraisal contingency is one of these. Before the deal can go through, the buyer hires a home appraiser to determine the house's value. The appraiser must visit the house to calculate its value, and the appraiser might spend hours factoring things into the appraisal. Appraisers know how to calculate how much a home is worth, and they do this by comparing the home to others. They also factor in the condition of the home, its location, and the upgrades.
The purpose is to provide the buyer with a value for the home. The appraisal contingency allows the buyer to void the deal if the home is not worth the amount they offered to pay.
The Results of the Appraisal Can Affect the Real Estate Deal
If the appraisal results in an amount that is equal to or higher than the offer amount, the buyer must go through with the purchase. The buyer will have no reason to renegotiate the deal, and the appraisal contingency will not allow the buyer to back out of the deal.
The problem arises when the appraisal amount is less than the offer amount. Suppose the buyer offered $200,000 for your home but found out that the home was appraised for $180,000. The buyer would not have to purchase your home for $200,000. Instead, the buyer could void the deal or renegotiate with you.
If the buyer decided to renegotiate, they might offer you $180,000 for the house. As the seller, you can agree to the new amount or walk away from the deal. Keep in mind; a buyer will experience challenges getting a loan to buy your home if the appraisal is less than the offer amount.
If you have questions about home appraisals when buying or selling, talk to your local real estate agent to learn more.
Share21 September 2020
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